Welcome to today's AerCap Holdings' First Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. This call is being webcast, and an audio version of the call will be available on the company's Web site. The call is also being recorded for replay purposes. I will now hand the call over to Mr. John Wikoff, Head of Investor Relations.

Thank you, operator and hello everyone. Welcome to our 2016 first quarter results conference call. With me today is our Chief Executive Officer, Aengus Kelly; and our Chief Financial Officer, Keith Helming. Before we begin today's call, I would like to remind you that some statements made during this conference call that are not historical facts maybe forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. AerCap undertakes no obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call. For information concerning issues that could materially affect performance can be found in AerCap's earning release dated May 12, 2016. A copy of the earnings release and conference call presentation are available on our Web site at aercap.com. This call is open to the public and is being webcast simultaneously at aercap.com and will be archived for replay. I will now turn the call over to Aengus Kelly.

Thank you, John. Good morning everybody, and thank you for joining us for our 2016 first quarter earnings call. We are delighted to be reporting another strong quarter for AerCap's core business. During the first quarter, we generated adjusted net income of 301.6 million, an earnings per share of $1.54. We finished the first quarter of 2016 with total assets of $43.7 billion, and a very healthy net spread, which is a critical measure of our operational performance of $865.7 million. Our net interest margin was 9.8%, which we achieved, thanks to the attractive financing terms available to AerCap, the capabilities of our platform and the quality of our portfolio. Moving on to some operational trends, AerCap's fleet utilization remained at a stable 99.5% throughout the first quarter. We also completed 131 aircraft transactions, far exceeding one transaction every 24 hours for the first three months of the year. These transactions include the signing of 100 lease agreements, and the first placement of 10 Boeing 737 MAX 8 aircraft. These aircraft form part of AerCap's order for 100 737 MAX aircrafts placed in June of last year, for which deliveries start in 2019. We also purchased six new aircraft, and we disposed of 25 aircraft as we continue to prune our portfolio of older and less efficient assets. We completed the sale of approximately $340 million worth of aircraft during the first quarter, at an average age of 14 years. This level of sales activity illustrates that there was robust demand in the secondary market for aircraft globally. The average remaining lease term of our portfolio grew to 6.1 years during the first quarter, and we have already placed 90% of our new aircraft deliveries through 2018. This level of activity provides tremendous stability and earnings visibility, with revenue booked…

Thanks, Gus. Good morning everyone. I'll start on page five of the presentation. Our reported net income for first quarter was $223.1 million, and adjusted net income was $301.6 million. The adjustments made to derive adjusted net income include $9.7 million for the elimination of costs relating to the mark-to-market of interest rate caps and swaps, $12.6 million for transaction and integration expenses relating to our MRO AeroTurbine subsidiary, $12.9 million for the remainder of the AeroTurbine operating results, and $43.3 million for maintenance rights expense. We have now included the impact from our non-core AeroTurbine business as an adjustment in driving net income in order to better track core earnings. I'll talk about the status of the downsizing of AeroTurbine in just a moment. Page six: Reported basic earnings per share were a $1.14 in first quarter and adjusted basic earnings per share a $1.54. Fully diluted earnings per share on an adjusted basis were $1.53 in the first quarter. Slide seven: As previously mentioned, the impact from the expensing of the maintenance right assets was $43.3 million. This asset is the portion of the acquired ILFC aircraft value that was classified as an intangible asset in purchase accounting. The amortization cost for this asset is recorded as leased expense instead of depreciation expense, as of expense more quickly over the remaining lease term instead of over the remaining economic life of the aircraft. We expect the impact for full year 2016 is approximately $150 million, and as you can see the impact over time next to zero. Page eight: Total revenue in the first quarter was $1,139.3 million, maintenance-related revenue was $150.4 million, net gain on sale of assets was $19 million, and other income was $9.3 million. A slight decrease in basic lease rents versus the prior…

Thank you. [Operator Instructions] We will take our first question from Jason Arnold of RBC Capital. Please go ahead. Your line is open.

Hi, good morning guys. Nice results here at this quarter. I was just curious if you could talk a bit in a bit more detail on the operating environment, maybe commenting on where geographically or otherwise you're seeing the greatest opportunities here, at present?

As we've said before, there hasn't been a tremendous change in the operating environment. Most of the world is generating good, solid traffic growth. The more difficult areas of the world are unchanged, which would be South America, led by Brazil, and then the Russian environment. But overall, we see fairly robust demand from the crucial markets of North America, Europe, and Asia. And I have just returned from China actually, where I spent a week, met with all the major airlines in China, and we currently have more new aircraft campaigns ongoing in the Chinese market than any other market. I also recently spent some time in India. And we see there, that was an environment that we have pulled more or less a lot of our capacity out of over the course of the last few years, but now we are seeing more profitable growth in that market; less supply than we had seen before. So it's a healthier market than we've seen in the past, and it's something that we are looking at putting more capacity into over the coming couple of years. So overall, positive.

Great, thank you. And then just one other quick one, you broke out the one-time restructuring charges on AeroTurbine, but I was just curious if you could highlight, kind of, moving parts on the net loss in operations there in the quarter. I'm sure it's kind of related, but just any color you could provide there would be helpful.

Sure. Well, last quarter, in fourth quarter, as you remember, we did take a large restructuring charge relating to the downsizing of the AeroTurbine business. The feedback that we got, both on the call of the fourth quarter results, as well as subsequent meetings with investors and analysts is that they would prefer to see us also in our adjusted net income adjust for these results from AeroTurbine, so that the core leasing business can be tracked better. So effectively here in first quarter we made that adjustment. So our adjusted net income now excludes the impact from AeroTurbine. In the quarter itself, AeroTurbine, we had a small write-down on some assets, and we also had some severance costs, and we also had some period operating losses, where effectively the margins that we were booking in the business did not offset the SG&A effectively or the operating costs. Again though, as we further decrease the business and downsize the business we expect those operating losses to diminish.

Okay, super. Thanks very much for the color guys.

Welcome.

We will take our next question from Richa Talwar of Deutsche Bank. Please go ahead. Your line is open.

Hi everyone, good morning. So a quick one first, the $800 million excess capital expected for the year, in the prior quarter you'd estimated $800 million to $1 billion for 2016. Is this decline just a reflection of share repurchases made during the March quarter or is there more to it than that?

No, there's no more to it. And we say approximately $800 million. The level of sales increases to $2 billion, you'll get closer to the $1 billion.

Okay, great. And then, Gus, I wanted to pick your brain on competitive sources of capital funding for aircraft acquisitions. We saw a few more international EETC deals close recently. For instance, Norwegian price of steel, I think, just last week. But on the other hand, we've heard ECA financing transactions over $10 million have essentially been shut down. So putting together these various countering trends, curious if you're seeing net more interesting and lucrative opportunities to finance aircraft or if it's becoming tougher to find deals that meet your return requirements?

Well, maybe just a comment on both of those deals. The Norwegian EETC I think is another great step forward for airlines that we can see international airlines, and who have financial statements in line with IFRS are able to issue into the EETC market. It's long been an advantage of the U.S. carriers only. So I think that's just positive for our airlines to have that access. In relation to the ECAs, the $10 million limit is specific to EXIM at the moment. That my understanding is that a full board, they cannot approve transactions in excess of $10 million. I understand they're one director short at the moment. Once that director is appointed, then they will be able to start approving deals in excess of that amount. But overall, the financing market is fairly robust right now. And in our view, as we look to deploy our capital, we're always looking at capital allocation. It's at the forefront of our minds, what is the right way to spend our shareholders' money. And is it to buy airplanes at the moment or is it to buy our own share, i.e., buying our own airplanes. And clearly, at the moment, would believe there is better value in buying our own shares. I do believe, as we go through the next couple of years as we see stronger deliveries of the A320neo, the 787, the MAX, and the A350, which is the technology of assets you want to be buying. You don't necessarily want to buy the end-of-run airplanes at this point coming that are brand new off the production line. But as we see it right now, our buying our own share is more attractive than the alternative of buying aircraft in the market.

Okay, great. And if I could just ask you one more related to that, although your response kind of answers this. But one of your competitors recently characterized the current environment as a buyers' market for aircraft, and said they're finding deals that are in unlevered return basis are trending about half-a-point greater than last year. Can you comment on what you're seeing in that context specifically?

Well, I think there are different parts of the aircraft market. For us, at the moment, as we look to the future, how we want to build the portfolio. If we look at what we have been disclosing, all our focus is on building the portfolio around the newer technology assets, and they're just not delivering at the moment. And certainly, I do think that if you were to buy existing technology assets you're probably better off buying assets that are 10 or 11 years old, rather than those that are one or two years old, because you still have to get through 25 years of useful life off them, but as I've said, our focus is elsewhere.

Great, thanks for all that color.

We will take our next question from Andrew Light of Citi. Please go ahead. Your line is open.

Hi there, good morning. On the aircraft disposals, I estimate the pre-tax margins around 6%. And that compares to 9% in the previous quarter, and I think 12% through last year. I mean, is that giving a sense of the direction of returns you can make on the aircraft disposals? Would you say it's a very lumpy kind of figure?

Well, Andrew, hi. The sales that we did in the first quarter, actually two-thirds of the sales related to old wide-body aircraft as well as the CRJs. So, on those particular sales the margins were not as high as what we experienced in the past, but obviously, those are the assets that we want to sell down. So that's why I think you saw slightly smaller margin in the first quarter.

Okay. And on the maintenance rents, are you able to break that down between unscheduled and scheduled lease terminations…

Yes, of the $150 million maintenance revenue, approximately $80 million of it is relating to the lease terminations and lease amendments.

Is that scheduled or not?

No, those were not scheduled.

Okay, thank you very much.

We will take our next question from Kristine Liwag of Bank of America. Please go ahead. Your line is open.

Hi, good morning. Gus, can you talk about whether or not there are any airlines in your watch list, how that changed from last quarter? And also, if there are any airlines that are currently in payments?

As we've said, look, the receivables position has been very robust over the course of the last year. There has been no material change really at all. You'll always have one or two small guys who need a push, but no, we don't see any change really in the receivables position over the course of the last few quarters.

And then if you'll allow me a follow-up, for the aircraft that you said you had unscheduled free marketing and also consequent leases, can you talk about the lease rate factors for the deals?

Yes, so most of those airplanes that were on schedule actually were very old airplanes. And many of them actually have just been sold or parted out. And they came out of carriers, for the most part, out of Russia, where we're taking capacity out. But these are very low-value assets.

Great, thank you.

Welcome.

We will take our next question from Jamie Baker of JPMorgan. Please go ahead. Your line is open.

Hi, good afternoon. This is Nish Mani on for Jamie. Quick question about asset disposals going forward for the rest of the year, can you give us a rough sense of the mix between wide-body and narrow-body aircraft you guys are targeting? It looks like in the first quarter it was primarily biased to smaller aircraft narrow-body and regional jets. Just wanted to get a sense of how the portfolio could be optimized going forward?

Sorry, as Keith said actually, the bulk of the sales in the first quarter were in old wide-bodies and regional jets. As we go through the rest of the year, I think you'll see probably a mix of around 40%-odd give or take in the wides and the balanced than in the narrows.

Okay, great. Thank you for the clarification. And now that it's topical, Gol is obviously undergoing a pretty public restructuring. And I just wanted to get a sense from you guys about exposure there, and how you guys see that ultimately playing out?

Our exposure there is fairly small. Actually, we're not one of the bigger participants in Gol. We have four older 737-800s and a 700. And we do believe that Gol will make it through this period. And we'd be optimistic about Brazil in the longer term. And they have a very large network that is very important to a number of very large airlines around the world, and also to Boeing, of course.

Yes, and what steps are you guys taking in the near-term to secure those aircraft and payments on them?

We're not behind in any way. We're getting paid, so we have nothing to be, there, to do at the moment.

Okay, great. That's it from us. Thank you so much guys.

You're welcome.

We will take our next question from Moshe Orenbuch from Credit Suisse. Please go ahead. Your line is open.

Great. Following up on that, one of your competitors did suggest that the restructuring of some of the airlines in South America gave them some opportunities to actually buy planes. And is that something that we could see as the rest of 2016 goes along?

You may. But I do feel that I prefer to buy our planes at the moment by buying our own shares, rather than the ones that are available in the market right now.

Got it.

Furthermore, I do feel that if we're to buy brand new aircraft, that we're better off buying the airplanes in the future, be it the NEOs, as I said, or the MAXs.

Got it, okay. And just in terms of the -- both the impairment cost and the maintenance revenue, was the activity in the first quarter something that was unusual in size? I mean is that something that's going to continue? How should we think about that?

Yes, the first quarter was unusual in terms of the number of lease terminations and, effectively, lease amendments as well. So including the impact from the impairments and the excess revenue, with those terminations gave us a positive impact of about $15 million for the quarter.

Great, thanks very much.

We will take our next question from Gary Liebowitz of Wells Fargo. Please go ahead. Your line is open.

Thanks operator, good afternoon guys.

Hi, Gary.

I was a little surprised to see that average sales of March 31, there were no changes to your 2016 Airbus deliveries, can you talk about how we should think about your CapEx profiles for the rest of the year, and as of May 12, has there been changes to your Airbus skyline?

Gary, so the aircraft purchases for the remainder of the year, I think we have seven aircrafts to be purchased in second quarter, and then we have 13 in third quarter, and then 17 in fourth quarter. So, these are back-end loaded here in 2016.

Okay. And you are still confident that all those NEOs and 350s will be on time?

It will. There will be some delays of those airplanes, Gary, I mean, obviously the one -- some of them we're supposed to deliver in the fourth quarter of 2015, and that has caused, as Keith referenced in his comments, some of the lower lease revenue for this year, and I think we will expect to see any aircraft in the first nine months experience some delay. We can't comment on the duration of those delays at the moment, but we don't see any material significant delays out of them.

But it does look like for -- you shifted about eight planes, eight NEOs out from 2017 to 2018? Is that because of the delay, or is that something else?

That's delayed, Gary.

Okay. And also, if I look at your revenue guidance for the year came to $4.8 billion, that would exclude all trading gains, but I'm having a hard time getting down to $4.8 billion unless the asset sales that you're forecasting are going to happen pretty quickly?

Yes, we do have quite a bit of aircraft sales in the pipeline, Gary. So first of all, just to help clarify, in 2015, the comparable number, excluding gains and excluding AeroTurbine was $5.0 billion. So the difference between 5.0 and 4.8 is the result of the fact that we have sold a lot of aircrafts, and we expect to continue to sell a lot of aircraft this year. I mentioned in my guidance that we expect to sell $2 billion of aircraft this year, and also as a result of delays you just talked about, that's why we're at 4.8. And again though, we will be generating excess capital from those sales, and expect to redeploy that, so you'll start seeing that benefit towards the end of 2016 and obviously going into 2017.

Okay, great. And also one more, can you just give us an update on your placement requirements for the 350s and 777s, I think, you had one each for 2016, and half of the 2017 you are able to address those in last three months?

We're in the process of addressing those, Gary, as well as some of the airplanes further out.

Okay, thank you.

You are welcome.

We will take our next question from Vincent Caintic of Macquarie. Please go ahead. Your line is open.

Hi. Thanks very much guys. Keith, I just wanted to touch on the core EPS guidance of 550 for this year. What level of buybacks are you assuming in the cadence of those buybacks for 2016?

We are assuming just over 800 million. So again, if we generate, and we do more aircraft sales, and generally more interest capital, we potential could deploy more.

Okay, got it, makes sense. And then, you touched on that later on in your Investor Day, you'll talk about guidance, and in the last Investor Day you had some rough guidance on 2017 and 2018, and as it stands today, is there anything that you think could be just how we should think about any material changes to the -- for your guidance going forward in the next couple of years?

No. I think even though we didn't get specific guidance for '16, '17 and '18, and the individual years previously, the three-year outlook that we talked about, I think, is still reasonably on track, if you will. '16 is always going to be relatively flat versus '15, again because of the limited amount of CapEx, the fact that we were selling a lot of assets, and now of course the OEM delays. So again, the three-year outlook is effectively on track.

Got it, that's all I had. Thanks so much, Keith.

We will take our next question from Christopher Nolan of FBR & Company. Please go ahead. Your line is open.

Hi. Thanks for taking my questions. Shall we expect aircraft to be sold in the rest of 2016 to be older aircrafts, similar to what was sold in this quarter?

Generally, yes.

Okay. So we should assume a lower gain on sale margins?

Most likely, it depends on obviously the mix of the aircraft, but again, we are not selling the aircraft really for the gain on sale impact, but we're selling it to improve the portfolio.

And we should see the average age of the fleet start to come down from the 7.7 down to the 5 to 6 level?

You will again with these aircraft sales. Because, again, the aircraft we're selling are double-digit in terms of age. And of course, we've got the order book that is delivering over the course of the next several years. So you will see the average age come down.

Okay. And then on the share repurchases, Keith, could you walk us briefly in terms of the thinking of how you approach share repurchases rather than deploying the capital into aircraft? Because it sounds like the overall leasing market is solid, but your stock is trading near book value. I'm just trying to see how you're looking at how you make your calculation.

Well, whenever we deploy capital we look at all the potential opportunities, if you will, buying aircraft, obviously buying our own debt, obviously buying our equity position. So we're monitoring what can be bought in the marketplace today in terms of aircraft purchases, and the return on those particular purchases don't meet buying our shares at below book value. So that's why we're out there buying shares today.

So if the stock price moves above book, then we can see the repurchases slow down?

Well, you've also got to look at what you're buying. You could buy assets that could generate a big boost to earnings per share of course, but you may have a big impairment down the road. So you've got to make sure that when you buy assets, not only do you generate a positive return on equity, but you also ensure that your balance sheet in the longer term is robust.

Okay, thank you for the color.

Sure.

We will take our next question from Arren Cyganovich of D.A. Davidson. Please go ahead. Your line is open.

Thanks. With respect to the $2 billion of aircraft sales expected in 2016, that's a bit higher than we were expecting in -- I guess relative to the $800 million of repurchases. It seems as though you would be de-leveraging to some extent. Can you talk about where you expect your leverage to go to towards the end of the year?

Well, we do expect to have our leverage still remain in the range that we've talked about before, between 2.7 and 3.0. Again, if we do sell $2 billion of aircraft we could be at the lower end of that range, perhaps maybe 2.8, something like that again for the rest of the year. Again, it depends on how quickly we redeploy the excess capital for other opportunities. But we'll stay within the range.

Okay. Thanks. And then with respect to your comments about India, I realize the market there has improved quite a bit. But a few years ago, a lot of lessors were having difficulty taking aircraft out. And I know you haven't had the same issues in the past when you took your aircraft out of Kingfisher. But just in general, what your thoughts are in terms of the risk management side of getting aircraft out of that if the market were to turn south?

Well, it's the same of anything in this business, be it taking advantage of opportunity or a threat. It's not the ultimate magnitude of your response to a problem or an opportunity. It's the speed of your response that determines success or failure. And in that regard, when it comes to managing problem situations, we never had difficulty getting airplanes out of a jurisdiction. Our issues around India were less focused on the legal issues, but far more focused on the supply and demand equation that we saw in the country.

Okay, thank you.

[Operator Instructions] Our next question comes from Darryl Genovesi of UBS. Please go ahead. Your line is open.

Hi guys, thanks for the time. I heard a little bit more reference to these contract amendments in your prepared remarks than I have in the past, I believe anyway. I'm just wondering, what does this mean exactly, because, my impression was, if an airline is insolvent or at risk, then you take the airplane out of there. And if the airplane is not, then the contract sort of stays as is with little to no modifications. So just wondering why the reference to amendments this time?

Yes, these amendments are not really relating to credit matters. So they're relating to the age of the aircraft. So in certain situations where there's limited life left in the asset we've extended the lease term or the least length into the end of the life of the asset, and effectively agreed with the lessee that there would be no returning conditions, and we will keep the reserves that we're sitting on. So, as a result, we recognized the revenue by keeping the cash reserves, and then that -- and then creates an impairment, and we offset that with that charge.

Okay. Thanks for that. And then I guess just on -- not to beat a dead horse on AeroTurbine, but I guess I'm a little concerned about what's happening with you guys excluding the operating results at AeroTurbine. And the reason I say that is because, to my knowledge, you're still transferring your own assets into AeroTurbine for part-out, correct? So just wondering, is the -- I guess the expense and the associated ultimate sale of the parts that you're taking off of the captive AerCap aircraft, there is some earnings, profit and loss associated with that. I'm just wondering if that's part of what you're excluding or if what you're excluding is purely related to the third-party business.

Just on AeroTurbine, at the moment, there's not an exclusive relationship for transferring our own assets down there. In fact, the vast majority of assets are sold into third-parties over the course of the last 18 months. And what's occurring in AeroTurbine is that we are downsizing the business to the core element that we want to remain. And the rest of the business is what's being disposed of.

But I mean in terms of what you're excluding. So, for instance, if you had an aircraft, you transferred the aircraft into AeroTurbine for part-out, the airplane got forwarded out, at that point I would think there would be some P&L impact that would probably happen kind of at the AeroTurbine level. So does that P&L impact just get excluded now based on the adjusted earnings number that you're reporting?

Yes, I mean, again what we're pulling out is effectively the results of AeroTurbine itself, their SG&A costs, their margins with their book and on their business. It's not connected at all to our own aircraft leasing results, if you will. And again, the difference here is as we downsize there'll be severance costs. There will be a limited amount of margins on the sale of the assets, and there'll be slightly higher operating expenses as we downsize. That's what we're excluding.

Okay, thank you.

And again, we'll have -- this will diminish over time. And effectively the AeroTurbine balance sheet will be very, very minimal by the end of 2016.

Great, thanks for that.

We will take our next question from Christopher Nolan of FBR & Co. Please go ahead. Your line is open.

Hi. At the Analyst Day, you mentioned, as I recall, that you -- if you were to put a credit rating on your airline customers, it would be a Moody's equivalent of BA1 as I recall. Has that changed since then?

No, not really. It's pretty stable. The credit quality of the customer base has remained pretty stable over the course of the last eight months or so.

Okay, thank you.

No problem.

We will take our next question from Gary Leibowitz of Wells Fargo. Please go ahead. Your line is open.

Yes, Gus, on the lease terminations, can you tell me how many early terminations there were, and who the airline was, and what kind of airplanes were involved?

It was mainly related to a couple of airlines that were focused around the Russian market. Either directly there or flying into it. Those were older assets. And it's important to remember, as Keith said, Gary, that what we did was we either just sold those airplanes or parted them out. And the resulting collateral that was released as part of it more than offset the reduction in the value of the asset.

Okay. And Gus, if I may, just one other customer question, you have a customer in Asia who is supposed to get three A350s this year. They're talking about restructuring. What kind of negotiations are happening around those three planes?

We don't comment on things like that, Gary.

Okay, thank you.

No problem.

[Operator Instructions] We will take our next question from Mark Streeter of JPMorgan. Please go ahead. Your line is open.

Good morning. Just wondering, any update on Fitch about what you need to do to get that upgraded to BBB-? I think everyone in the bond market is waiting.

Yes, well Fitch does their annual review of aircraft lessors in July, in the middle of the summer. So whatever action they're going to do we would expect it at that timeframe. But again, it's really in their hands.

And any thoughts in terms of -- obviously you have your S&P rating -- timing of being back in the bond market, sort of how should we think about you tapping the bond market for the rest of 2016?

Yes. I mean, we will be, I'm sure, in the bond market some point in 2016. The time is yet to be determined, but most likely we will be there at least one, if not twice.

Do you need the Fitch rating at BBB minus, or are you thinking that, depending on market conditions, you could go before you get the upgrade?

We are not waiting on Fitch to execute on our funding.

Okay, great. Thanks.

As we have no further questions, I would like to turn the call back to Mr. Aengus Kelly for any additional or closing remarks.

Thank you very much everybody. We look forward to talking to you at our next earnings call, or in investor meetings before that. Thank you.