Good day and welcome to today's AerCap Holdings' 2017 First Quarter Results 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 website. The call is also being recorded for replay purposes. I will now hand the conference over to Brian Canniffe, Head of Investor Relations. Please go ahead.

Hello, everyone. Welcome to our 2017 First Quarter Conference Call. With me today is our Chief Executive Officer, Aengus Kelly; and our Chief Financial Officer, Pete Juhas. 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, may be 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. Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated May 9, 2017. A copy of the earnings release and conference call presentation are available on our website at aercap.com. The 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, Brian. Good morning, everybody. And thank you for joining us for our 2017 first quarter earnings call. I'm happy to report another quarter of strong earnings and profitability. During the first quarter, we generated $1.48 of earning per share and net income of $261 million. The strong performance of the AerCap platform drove a fleet utilization rate of 99.7% for the first quarter, reflecting robust demand for aircraft globally. AerCap's global leasing platform continues to capture the growth in demand for air travel. During the first quarter, we executed 105 transactions, equal to more than one transaction every day. This included 69 lease agreements, 57 of which were narrowbodies and 12 were widebodies. Our average remaining lease term has now lengthened to 6.5 years. A notable transaction during the quarter was the delivery of the first two A350 aircrafts to Air Caraïbes. The strong demand for aircraft is also evident in the secondary market. And we continue to capitalize on this through the sale of 21 owned aircrafts which had an average age of 15 years and resulted in a gain on sale of 11%. As you are aware, the sale of aircraft is a very deliberate strategy by AerCap. Most importantly, it is a critical tool in managing our portfolio and improving the overall quality of our fleet. But the sales also generated excess capital that we were able to deploy by repurchasing stock at attractive levels, which creates further value for our shareholders. In the past 12 months alone, we have grown book value per share by 17%. We do recognize that the asset sales program has resulted in a reduction in assets over the past two years and has had an impact on our net interest margin. However, as noted, it has improved our portfolio…

Thanks, Gus. Good morning, everyone. I'll start on Slide 5 of the presentation. Our reported net income for the first quarter was $261.2 million, an increase of 17% over the first quarter of 2016. The increase was driven primarily by higher gain on sale of assets and lower maintenance rates expense, as well as lower losses from our AeroTurbine subsidiary, as we approach the final stages of our wind-down of AeroTurbine. This is partially offset by lower income as a result of our sales of mid-life and older aircraft, which reduced our average lease assets by around $1.4 billion, year-over-year. Turning to Slide 6, our diluted earnings per share for the first quarter was $1.48, an increase of 31% over the first quarter of 2016. Earnings per share was impacted by the same factors driving net income, as well as by the repurchase of 31.6 million shares during 2016 and the first quarter of 2017. You can see the impact of these share repurchases coming through, and that while our net income was up 17% year-over-year, our EPS was up 31%. On this slide, we've also provided the after-tax earnings per share impact for the same components as we did for net income. On Slide 7, our total shareholder's equity as of March 31 was $8.520 billion. And our book value per share at the end of the first quarter was $51.20. We have grown book value per share as Gus mentioned by 17% over the past year through a combination of earnings as well as share repurchases, and by 33% over the past two years. Through last Friday, we've repurchased around 50 million of shares or over 23% of total shares outstanding for over $2 billion. On Slide 8, our total revenue for the first quarter was $1,236.8 million.…

Okay. Thank you. [Operator Instructions] We will pause now for just a moment to assemble the queue. We will take our first question today from Jason Arnold from RBC Capital Markets. Please go ahead.

Hi, guys, good morning. I guess, just two quick questions. One was on the robust gain on sale margin here this quarter. I was just wondering if you could talk a bit more on detail on that, maybe specifically any types in particular that you're seeing higher demand on?

It was really across the board, Jason, I mean, if you look at - we try to lay out there on the slides. But if you look at the average age of the aircraft that we sold, it was 15 years in this quarter. Going back to the first quarter of 2016, it was 14 years. So it's really very similar. We are just seeing a lot of demand for these used aircraft.

Okay. Great, thanks. And then the other question I had was maybe you just update us on your view on the widebody market. We've heard recently some stories from, I believe it's Malaysia and then a few other airlines using or at least contemplating use of widebodies on high traffic routes that are typically maybe more narrowbody on focus, so maybe just some thoughts on that avenue there as well?

Sure. We are seeing an up-gauging of aircraft. And it's a theme that has been going through the industry for quite a few years now. There are a number of routes, particularly in slot constrained airports like Jakarta, where there is, and I should say Kuala Lumpur as well, where there is definitely traffic being spilled that can be picked up if there are bigger aircraft on the route. Now, of course, the risk of putting a bigger aircraft on the route is, are you sure the traffic will be there for long enough to justify it. And it seems based on what we've observed, as we work with airlines, that there are a number of hubs in the world that are significantly congested on both sides that justify moving from, in Malaysian's case 737, to a larger gauge airplane. That is something we are observing, I mean, that the widebody market overall, a good widebody will move. It's worth nothing that this - we moved 300 [boats already] [ph], 300 widebodies in the last 2.5 years. And indeed, we have leased 112 A350s and 787s as well.

Excellent, thanks very much for the color, guys.

Thank you. We will now take our next question from Jamie Baker from JPMorgan.

Hey, good morning, guys. This is actually Nish Mani on for Jamie. Can you guys remind us of your exposure to Alitalia? And how you guys think about managing counterparty-risk, kind of more broadly speaking?

Sure. We have less than 1% of lease revenue coming from Alitalia. We manage counterparty risk very carefully. As I mentioned in my prepared comments, there are always events that occur. Last year, it was focused more in Turkey, and then before that in Russia and Brazil, so this is nothing unusual. And if you look at our credit costs over the last 10 years, you can see that where they have averaged less than 1% of lease revenue per annum. So we are working with Alitalia now and we will see how that evolves over the coming weeks and months.

Okay, great. And then just switching gears for one second. Taking a step back and looking at your overall fleet strategy. I mean, you guys sold pretty healthy amount of aircraft in the first quarter. And it sound like, it's a portfolio optimization exercise, if you take advantage of the market and demand for these mid-life assets. But as your order books for new deliveries accelerate in 2018 and 2019, can you help us think about how you want to manage the border portfolio? Are you solving for an average age for example and taking advantage of this period? Or are you kind of content with being in that kind of seven-year bracket so to speak? Thank you so much.

We're quite content where the average age is. We generally feel that at the higher end of the range, you don't want to be much more than eight years of age on average. And at the lower end, you don't want to be too much less than low fives. I think in that area, you provide the right risk and reward return for our shareholders. So that's where we target and that's where we are at the moment. As the new fleet deliveries on the order book, just by virtue of the value of the new aircraft delivering, you will continue to see a decline in the average life of the fleet. And in terms of asset sales, there are certain assets of course that we do want to dispose of, and if we feel that we received the right bid and we'll continue to sell those assets. But it's a combination of looking at the returns from holding the asset versus are we getting the right price to sell it.

Okay. That makes sense. I really appreciate the color. Thank you so much.

You're welcome.

Thank you. Our next question comes from Moshe Orenbuch from Credit Suisse. Please go ahead.

Good morning. This is actually James Ulan on for Moshe. Thanks for taking my question. We see that your coverage ratio is going up, I guess from kind of 1.3 to 1.2 to 1.6. And I was wondering if you guys can expand on your philosophy on how to prepare the company for a downturn, especially on the liability side to protect against risk, and how to potentially prepare the company to go on the office in a downturn scenario?

Sure. Thanks, James. So the most important thing, obviously, we want to maintain a high level of financial flexibility. And that's why we carry the liquidity balances that we have today. So when we look at it, we say, it's got $9.5 billion of liquidity, if you look at that plus the operating cash flow that we expect and how does that compare to our needs over that period. We also - but it's also equally important to make sure that the facilities that we have, have the right - or structured appropriately. So they don't have any max or anything like that that in them that would not be of use when - if a downturn comes. So we're very cognizant of that. You're right that we're carrying higher levels of liquidity recently. That's really just a function, I'd say, some of it is timing function. So it will move around. We still target 1.2 times, I'd say we tend - as you've seen, we tend to be somewhat above that. But longer term, I expect that that ratio will come down really because the level of CapEx that we have ramps up in the second half of this year. And so, that ratio itself will come down, but in terms of an absolute amount of liquidity that we're holding that will still remain high.

Okay. That's helpful. And can you kind of talk about the competitive environment for executing more larger sale leaseback transactions? Some of your competitors on their recent conference calls announced bigger transactions and we were just wondering kind of how today's environment compares to the past, and whether we might see something incremental in addition to your order book?

Look, as we said before, our objective is to spend our shareholders money to achieve the maximum return for an appropriate level of risk. Over the course of the last several years, the growth of the company has been fueled by M&A, and from that M&A an attractive order book that came with it. We then used a lot of our surplus capital to delever the business. Over the course of the last 18 months, we've been in the position to allocate capital as we see fit, be it for OEM orders, be it for sale leasebacks, share buybacks or M&A activity. As we evaluate sale leasebacks every week, we bid on sale leasebacks every single week. We evaluate that versus the attractiveness of buying our own aircraft by the share buybacks. And at the moment, we are yet to seeing a transaction that is superior in a risk and reward balance than buying our own aircraft. So long as that remains the case, we'll continue likely to buy our own stock. However, that can change very quickly too. And when it does change, we will be there and we will do it in large size, as we have in the past.

Great. Thank you.

Our next question comes from Michael Linenberg from Deutsche Bank. Please go ahead.

Hi, this is actually Matt on for Mike. So American has recently deferred A350s. And it has been reported in the press that Delta would like to defer up to 10 A350s, and United has indicated that the A350 may not be right for its fleet. Is it response so the big three have any impact on the A350's desirability and residual values?

Don't think so. I can't say as to exactly why they're deferring the aircraft. I understand from some of the comments, they may be to do to the alleviation of working capital. What you did see with the A350 was the largest airline in Asia just order 20 of them last week, and there is another few unidentified orders that were announced also. The A350-900 and Boeing 787-9 are the widebody airplanes of the future. And they are both, we believe excellent airplanes and they'll form the backbone likely of our widebody fleet as we go forward.

Thank you. And can you just discuss any potential delivery delays, due to aircraft manufacturer or supplier bottlenecks? Thank you.

Sure. I mean we had addressed this at our Investor Day in November of last year, when we had given some guidance on what we thought would occur with delays as we are working continuously with all the manufactures, the biggest owner of commercial airplanes in the world. And the information we gave at that point in time is still accurate and they are the delays that we've observed. And if that changes, we'll make you aware if there's any material change to those delays. But what we envisaged last year is so far, I stress that so far, that what has occurred.

Thanks for taking my question, guys.

You're welcome.

Thank you. Our next question comes from Helane Becker from Cowen and Company. Please go ahead.

Hey, guys. It's actually Steve on for Helane. Just going off of that, it looks like you guys pulled forward some orders into 2017. And I believe also in A320s, a couple of your customers have - actually had to put those aircrafts on the sideline. Are you guys getting penalized for those aircrafts? Thanks.

Sure. Let me answer the first part of your question. So on the A320neos, you're right, move eight. In our schedule on Page 18, we moved eight of those that we had originally expected to be delivered in 2018, back to 2017. And basically, that's because of the discussion that we've had with Airbus and those. In general, we've assumed about three to four month average delay on the platinum [ph] in the A320neos, and about one month delay or so on the CFM A320neos.

We should note, of course, those eight planes are just pulled forward primarily from the Q1 into Q4. So won't have any big impact on the guidance that we have given to you in any event. And then on your question about airplanes that are out of service at the moment, there are ongoing discussions that we are having with the airlines and the OEMs, and can't comment on those.

Okay. And then, one of your other customers actually - sorry, one of your other competitors started to use their management capabilities to manage aircraft that typically don't - wouldn't fit into their fleet. Have you guys thought of using your management capabilities a little more fully, maybe managing some younger aircraft, maybe below that five years you were talking about, managing some older aircrafts, 15 years or older, that wouldn't typically fit into the aircraft fleet. But you can maybe monetize the aircraft cycle a little more?

Sure. I mean, obviously, we've managed hundreds of airplanes over the years. And if you look at the ABS market, as an instrument, that's often used for that reason. And we invented the ABS market 20 years ago. And did the largest transaction ever done and it's still since. And have issued more ABS deals than anyone in the world for all different reasons and variations. The reasons for ABS are excellent. They can generate significant amount of leverage at a competitive price. If you don't have access to competitively price on secured aircraft, they can very importantly alleviate balance sheet pressures. That was something why we have primarily done it in the past. And the other big user of ABS is being GECAS. They've primarily used it for gain on sale to be fair. You would never really use it for management fair revenue streams, because over time it's a big commitment over a long-term period, the cost associated with adequately servicing those vehicles. And while those fees are attractive at the front end, what actually happens over time is you have to produce an excellent standard of reporting and service to those vehicles and rightly so. And that doesn't come cost free.

Okay. Thanks, guys.

Thank you. Our next question comes from Christopher Nolan from FBR.

Hey, Pete. Can you give us an update on your 2017 CapEx estimate?

Sure. So, Chris, I'd say for the full-year 2017 it's about $6.5 billion.

Great, and then…

So we did about $900 million in the first quarter, so that's $5.7 billion remaining, roughly.

Great. And then, just sort of a housekeeping question, what's the book value of the aircraft sold in the first quarter?

I don't think, we've disclosed the actual book value of the aircraft sold. It was roughly - if you look at the cash flow statement, you will see it was around $400 million that's on the cash flow statement. There is another $30 million or so of maintenance related to that. So altogether, I'd say the cost of goods sold will be around $450 million altogether.

Great. Thanks for taking my questions.

Thank you. [Operator Instructions] We will take our next question from Arren Cyganovich from D.A. Davidson. Please go ahead.

Hi. Can you talk a little bit about the competitive environment? Now, we have another fairly large player with Avolon acquiring a lot of assets. What are you seeing from competition? Is it relatively rational and has it impacted much in terms of your placements of fleet?

I think it is - consolidation is a relatively positive thing for the industry we believe. And I think it was good that an experienced player acquired a large leasing company such as CIT, and in capable hands, we have seen no evidence of any irrational activity. And we think the consolidation is a positive and we will just have to see if there is further consolidation at the lower levels of the business as well.

Great. Thanks. And in terms of the CapEx numbers, Peter, that you just laid out the $5.7 billion, what's the cadence of those deliveries throughout the next three quarters?

.:

And those delays for the neos, is that included in that and those assumptions are - is there a risk that some of that would be pushed over to 2018?

Well, that's included in those numbers, and this is based on our latest discussions with Airbus. So obviously, there is always a risk that some of them won't deliver on time. But this is our best estimate right now. I mean, just to be clear, if you look at what we said in Investor Day, we were assuming further delays then and we're now are assuming a little bit less than that. So it does factor in to our forecast.

Okay. And in terms of the 95% placements through to 2019, is that only on an new order deliveries or is that also re-leasing stuff that's coming after books?

And that's all revenue from new aircraft and from the rollover of the existing fleet.

Okay. And just lastly, the other income line was somewhat elevated this quarter. Was there anything that in particular that was non-recurring or one-time revenue there?

It was really due to - primarily due to a termination payment, that we received related to a termination last year.

Okay, all right, thank you.

Thank you. [Operator Instructions] We will now take our next question from Scott Valentin from Compass Point.

Good morning. Thanks for taking my question. Just quickly on the net spread. It's running, I think it was 9.2% for the quarter. And I think the guidance for the year from the Investor Day was 8.9%. Just wondering if you expect kind of - if it's going to trend down over the course of the year, or do you think with the changes in rate may be worse we were back in November the forward curve, you think the margin can remain higher than initial guidance?

Yes, thanks, Scott. I would stick with the guidance that we got right now. I think 8.9% is probably a good number. And one thing you have to keep in mind is that we're leasing these aircraft well in advance. And so, it's hard for any movement to have an impact really on the 2017 numbers. It has to - it would impact - rise in rates could impact further out. But it will be hard to see much of an impact I would say on 2017. It could be 9%, 8.9% to 9%, but somewhere in that ballpark.

Okay. Thanks. And then, just in terms of kind of the - yes, the relationship between the fleet size and sales and buyback, to the extent that you guys sell more aircrafts over the - roughly $1 billion I think was the guidance at the Investor Day. If you go above that, would we expect you that more in the buyback, I think you guys had guided to about $900 million or roughly $1 billion on return of capital, as gain on sales higher, do you expect to kind of reinvest that into repurchasing shares?

Yes, so at Investor Day I have said $900 million roughly of excess capital for the year, which as you've seen, we've been using that excess capital to buy back stock. But we always have valued at that time. I'd say that was based on a $1 billion of sales for the year. As Gus mentioned, we're likely to see more than $1 billion for the year at this point. So I think if conditions were to continue the way they are now, we would likely use that to buy back stock. So, yes, both the larger size of buybacks, as well as gains on sale contributes to excess capital that we can deploy.

Great. And just one final question, I think Gus, you said 95% number includes all releasing and new deliveries. How much is left to release in 2017 and 2018 in terms of - I don't know if it's percentage of the fleet? I don't know you want to scrap it, but just the idea of how much is left in 2017 and 2018 to release.

If there's anything - there is not a huge amount left in terms of the percentage of the aircraft. There's virtually nothing left in 2017. There is left in a handful of new aircrafts and then a number of lower value narrowbodies as well, and one or two widebodies in 2018. But as a percentage of the overall revenue base of the business there, not a huge number.

Thanks very much.

Thank you. Our next question comes from Jason Arnold from RBC Capital Markets.

Hey, guys, one other quick follow-up for Gus, just curious if you could comment on the MAX 10 and your thoughts around that particular potential product.

I mean, we will - we continue to look at the aircraft. And we think it's certainly an improvement on the MAX 9. But we will just continue to evaluate it.

Okay. Thanks.

Thank you. That will conclude today's question-and-answer session. I would like to turn the conference back over to Mr. Canniffe for any additional or closing remarks.

Thank you, operator. Thank you everybody for listening in today. That's the end of the call. Thank you.