Welcome to today’s AerCap Holdings 2017 Third Quarter Results Conference Call [Operator Instructions] This call is being webcast, and an audio version of the call will be available on the company’s website. This call is also being recorded for replay purposes. I will now hand the call over to Brian Canniffe, Head of Investor Relations. Please go ahead, sir.

Thank you, operator, and hello, everyone. Welcome to our 2017 third 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 November 2, 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, everyone, and thank you for joining us for our 2017 third quarter earnings call. I’m happy to report another quarter of consistent earnings and profitability. During the third quarter, we generated a $1.62 of earnings per share and net income of $266 million. It is of course the platform of AerCap and its people that underpins our success. During the quarter the AerCap’s team executed 89 aircraft transactions. This include a 50 lease agreements, 11 purchases and 28 sales. Of the 89 transactions, 36 were for wide-bodies. Our utilization rate remains high at 99.3%. The demand for aircraft on a global basis remains robust, supported by year-on-year increase in travel growth of almost 8%. We are now 100% played on afford order book to 2018 and 91% through 2019. We continue to be active sellers of mid-life aircraft. During the quarter we sold 27 owned aircraft at an average age of 16 years. We achieved an average gain on sale of 9% on these transactions. This has resulted in further reduction in the average age of our portfolio to 7.1 years from 7.6 years a year ago. Our average remaining lease term is also trending positively. It now stands at 6.6 years, up from 6.1 years, 12 months ago. In relation to aircraft purchases, we continue to experience delays on the A320neo program due to issues with the GTF engines manufacturing process. We have urged United Technologies to put whatever resources required to solve the production issues of the GTF. This has resulted in the delivery of AGTF powered aircraft being pushed from Q4, ‘17 to Q1 of 2018. On a positive note, operators of the engine are impressed by the fuel burn savings the GTF provides. We are also experiencing delays on certain variants…

Great. Thanks, Gus. Good morning, everyone. I’ll start on Slide 5 of the presentation. Our reported net income for the third quarter was $265.8 million. That’s an increase of 18% over the third quarter of 2016. This increase was due primarily to higher gain on sale of assets as well as the absence of certain onetime items that affected our results in the third quarter of 2016. For the first nine months of this year, our net income is $809.9 million compared to $682 million for the first nine months of last year. Our earnings per share for the third quarter was $1.62, that’s an increase of 33% over the third quarter of 2016. Our EPS for the first three quarters of this year was $4.77, up from $3.55 last year. The drivers of the EPS increase this quarter were the same as the drivers for net income as well as the repurchase of 30.4 million shares from July 2016 through September 2017. On Slide 6, our total shareholders’ equity as of September 30 was $8.546 billion and our book value per share was $55.06. That’s an increase in book value per share of 17% over the past year. And that’s been achieved through a combination of strong earnings as well as substantial share repurchases over that period. Since June 2015, we repurchased over 59 million shares for around $2.5 billion. As Gus mentioned, that’s about 28% of our initial total shares outstanding. On Slide 7, our total revenue for the third quarter was $1.273 billion, our basic lease rents were $1.384 billion. As we’ve seen in prior quarters, basic lease rents decreased due to the sale of midlife and older aircraft over the past year, which reduced our lease assets as well as the age of our fleet. Our…

Thank you [Operator Instructions] We now take our first question from Moshe Orenbuch from Credit Suisse. Please go ahead.

Maybe just kind of – at a high level, if you could just talk a little bit about how you’re thinking about the lease rates for the newer neo and MAX versus the existing technology. And maybe just talk a little bit how you manage that risk over the next couple of years?

Sure. We’re seeing a very robust demand for existing A320 family aircraft as a robust as we have seen. Now that is a factor of the positive global traffic that’s out there. As you saw, we’re at 7.9% growth year-on-year in traffic. And, of course, it’s being aided by the delays in the GTF. So that has given certainly a near term boos to demand for those aircraft types. Turning to the new aircraft, the new technology as they deliver, we continue to see very strong demand for the A320neo, the A321neo and also the 737 MAX 8. We see those three aircraft types having extremely strong demand. In fact, just this morning, we were debating whether or not to reach to lease a very significant number of our 2020 slots on the neo side or to hold them back for future campaigns. That’s the best evidence I can give you of the market demand for the asset type. So despite the fact that the engine is having its teething issues, when it is in service it is providing impressive fuel burn savings to the customer base.

Maybe that’s just a follow-up. Has the leasing set kind of manifest itself in terms of leases that are coming up on kind of existing technology?

Well, the market is growing at a significant rate as it always does. I mean, it’s very important to remember that structurally always have growth due to 100 million people boarding an airplane for the first time every year in the world. That isn’t going to change. We see – we expect to see very strong demand going forward, and for the CO and the NG, particularly, those in the midlife ones where they represent and very good value. So we don’t see any change in that in the near future.

Just on a separate matter, given that the delays any kind of change, I mean, you know kind of re-up with another $200 million in the buyback, any other kind of changes in capital allocation that we should think about?

No, Moshe. Capital allocation is something we consider very carefully on a continuous basis here at AerCap, and what is the best use of our capital? Is it buying aircraft in the markets, placing orders, acquiring our own shares or M&A? And these are the things we are always looking at. And we still feel that purchasing our own shares is very compelling investment alternative for us.

The next question comes from Mike Linenberg from Deutsche Bank. Please go ahead Mike, your line is open.

Yes, sorry about that. Hey, good morning, everybody. Gus, you had good success selling these older or midlife – older aircraft with big returns. Who’s buying these airplanes? Is another less source? Are you seeing a pickup in purchases off lease by airline operators as work just given where financing costs are et cetera. Can you give us some color on that?

It's a combination Mike it is of course airlines, the airlines the very old airplanes the airlines that we'll take on. The airlines will say to themselves for example take an A340, as an extreme example, they will say okay particularly old one you know with low fuel, I'll operate it for another three or four years before I get a 787 or an A350 in, and so they'll just, they'll come and buy the airplane. Same is true on 767, the airlines are the buyers with those asset types. We see other lessors also buying midlife assets but there's different stripes in these lessors some of them are genuine global lessors but many of them are smaller niche players where either we assist in the management of the platform or they may even work with someone else to assist in the management of the platform and the investor behind it is just looking at this as being a stable asset class that they wanted to invest in. The return on equity they're targeting is a significant premium to what they're able to earn in the US treasuries or German bonds but having said that it is less than what our shareholders expect to earn because we have the platform of course. So those investors are behind some of the portfolio buys as well.

Okay great, and just a second question and this is probably for you and or Peter. When we think about your net interest margin over a cycle, this last quarter was very representative of a lot of puts and takes that drive that number. I mean in a lot of office themes that not being necessarily economic some of it has to do more with the mix of the aircraft in your fleet. As we take longer term where does that bottom out where does that top out. And then we've seen it above 10% in the history of AerCap we've also seen it down maybe in the low eights, maybe high seven. How do we think about your net interest margin over a cycle? What's the band there?

So I think, what we'll see is with the average age coming down over the next few years we'll continue to see that come down and then it will level out, so as we for the whole year this year we had said 8.9 to 9% and that's still a good number for this year and we'll see some reduction next year. But it is going to vary as you say I think over an say 8 to 10% range, that's probably a reasonable range to expect over a long timeframe.

The next question comes from Mark DeVries from Barclays. Please go ahead.

Yeah, thanks was just hoping to get some updated thoughts on when you may transition from being you know in that sellers plans to growing your fleet again.

Well we will start to grow again next year so in 2018 we will be start to be a net grower we expect.

Okay, is that more towards the back half of the year?

No, really it should be during the course of the year we'll be growing and a lot of it depends upon exactly when these deliveries come in. As you saw we pushed them out from the fourth quarter to the first quarter, but I think we will be growing throughout 2018.

The next question comes from Gary Liebowitz from Wells Fargo.

Gus, I was wondering with these aircraft delays does it change your position at all towards selling aircraft in other words you want to maintain a sort of level of sort of core leases in common these delays have made you think again that selling aircraft?

No. They don’t. The delays are some that we believe in the aircraft thus are and going to be delivered by the manufacturers. We see excellent demand for them. And when we look at what assets to see, if we believe we are getting a fair price for those aircraft, and we believe that post sale of those aircraft the average quality of our portfolio is at least as good if not higher, and then we will proceed with the sale as it is the right thing to do for the long term interests of the company. And the proceeds from those sales have been reinvested in share repurchases today. So I think, it’s always very important that we look to maximizing the value of the business in the long term doing the right thing always in – for the long term of the business. And we don’t want to be buffeted by near term worries about the next quarter earnings. And we think that we’ve demonstrated a very strong track record of capital allocation in maximizing the value of the company for shareholders.

Thanks. And a follow-up, you had talked about the neo delays from ‘17 to ‘18, but if I look at delivery schedule looks like, some of your Embraer deliveries from 2018 were pushed out. Is that a delivery in the program or is that just a lack of customer demand?

It’s a race to the engine as well Gary. And we placed now 15 of the airplanes, but which where we are going to see as you saw today from Bombardier’s announcement as well with the CSeries of further delays on their aircraft also?

So this is the program delay.

It will be engine related.

And just if you can comment on the news surrounding CSeries and Airbus, how does that affect the marketability of your E2s?

Well, we have to see how that materializes there if that transaction will call – will close the end of next year. It does indeed validate the fact that there is a significant market down there else Airbus would not have taken on a project of this magnitude while they are not paying anything for the investment in the aircraft. They will, of course, incur very significant costs in setting up production line to manufacture this airplane. The associated costs of logistics of supporting the airplane on a global basis are very significant. So this does validate the segment of that market that it is there.

Nice. And just one quick one for Peter. Peter, if I look at your average assets in Q3, they were unchanged from Q2, but your basic rents went down about $15 million. Is that entirely a function of the changing age profile or bringing on lower yielding new assets and sell the higher yielding ones?

Yes, that’s really it, Gary, because you can have a flat average assets number. But if it’s really weighted more towards younger aircraft then it’s going to be at lower yielding.

The next question comes from Jamie Baker of JPMorgan.

Good afternoon, everybody. I guess most of our questions have been addressed, so just a couple of housekeeping items. The placement figures you gave for the next two years, the 191% figures respectively, that’s a percentage of deliveries. What would the figure look like if we also include current aircraft with leases have to expire during this timeframe?

It's a fairly minimal number Jamie and we're going to disclose that at the investor day in November and 13 and you'll see over the next several years what the used aircraft releasing task is but it is very modest giving the capabilities and track record of the platform.

Okay, fair enough and you know just follow up on the 78 you know the increased production rate going to 14 a month in 2019. Any thoughts on whether that speaks to a potential crowding in the market a little bit or did you largely envision this stepped up rate you know in the first place when we ordered the aircraft last June.

We assume that the step up would come that our order may have been part of the cornerstone for the step up, but the airplane itself fundamentally and this is something we will talk about next week or the time when we meet. If we see very strong demands of that particular aircraft type of 787-9 we believe that it has wide spread acceptance in the market and we placed that order having been the biggest customer in the world for the 787. We had moved 89 of them before we placed the order and so we had looked at this market for a long time before we placed the order and so far we do continue to see the same level of demand for the aircraft as we had seen before the order.

The next question comes from Rajeev Lalwani from Morgan Stanley.

Hi, thanks for the time. Two questions first, Aengus you talked about some of the pressures in the European market are I guess maybe as contained to a couple of airlines. Do you see that spreading at all as we look forward do you think it will be a bit more contained as one or two carriers?

I think it would be relatively contained, I think it's fair to say that Air Berlin was an insolvent carrier that had been propped up by its principal shareholder. So once that shareholder decided to no longer support the carrier it was inevitable but it was going to go away. Monarch Airlines small charter operator in the UK but just never really got its cost fully under control, following its restructuring. That sort of marginal carrier, we don't see evidence of this spreading in fact as we look at our placement activity over the last couple of years in the used aircraft side and particularly it's been the European market that has exhibited particular strength and at the moment we continue to see a fairly robust market in the EMEA region.

Very helpful and then a follow up for you. In terms of the aircraft delays that you talked about going into the end of the year what implication does that have for some of the targets you've laid out before in terms of earnings for the year and yields and asset levels and that sort of thing.

It doesn't really have much of an impact at all on the targets for this year Rajeev just because these aircraft were going to come in very late in the year in the first place and so it really have very little impact to slipping out of 2017 into 2018.

The next question comes from Ross Harvey from Davy. Please go ahead.

Hi guys, I had a question or two on sales volume but it’s been asked and I guess we get more details [indiscernible] so my option is to ask about broader airline demand and we know that Q4 '16 was the first quarter in kind of two, two and a half years that was [indiscernible] year on year has continued since then so I'm wondering has there been any impact on demand outside of you know the more recent [indiscernible] specific events in Europe, and if you might be split that out between wide-body and narrow-body variance? Thanks.

Sure. It depends the example of the demand I can give you is that we repossess 22 airplanes from Air Berlin and from Monarch mix up wide and narrow, the wide A330s extremely liquid market the A330 of the small in production wide body is by far the most liquid. And they were moved, in fact, we were – we had those moved within a matter of a couple of weeks. They were the first to go. And we have moved then seven of the A320 narrow-bodies as well at least to ‘17. And we have seventeen and we have verbal commitments for another three. So there’s two left to go that we’re going to move as well, so that’s really the best evidence I can give you that we repossessed a significant number of aircraft and we have the vast, vast majority of them already under LOI within a few weeks. The demand for those aircraft is coming from Europe and Asia is where the airplanes are going.

And can you remind us just what the general turnaround period is on those aircraft? I mean, what sort of specifications on the aircraft that you might need to work on? Or what fiscal period is between actually taking it back from the previous lastly and moving around?

On the narrow-bodies it would be very short and they should be operating within two to three months. On the wide-bodies, there will be some work to be done on the interior, but not a huge amount on these ones. They were actually very well maintained high quality aircraft that had recently been upgraded by Air Berlin hence and the demand for them. And we’d expect them start getting into service in the first quarter of next year, begin going into service in Q1.

The next question comes from Jason Arnold from RBC Capital Markets.

Hi, guys. I was just curious on the Geared Turbofan delays, obviously, being a technological factor but it’s slowly getting worked out with that one kind of endoscope. What are your thoughts on the supply chain? And how things are being addressed on the production side of the equation with respect to that?

With respect to the GTF, specifically, Jason?

And not the GTF, but just more broadly.

I think the GTF is a reminder for the manufacturers that they’re actually manufacturers, that’s what they do. And they need to make me sure now they’ve done very well at selling. I think all of them be at Boeing and Airbus, with the air framers or the engine manufacturers that they look at their entire supply chain and make sure that it is robust enough to keep up with the demand. Of course as a marginal supplier of capacity to the markets, and there is a part of me that says Geared is generally not a bad thing for me on one of my used aircraft side, but it is extremely frustrating to my customers who are expecting new aircraft and have them planned into their schedule. And it does have any impact on their operations when they have to. But the last minute, it’s just capacity and bring in wet-leased airplanes. But I think that the manufacturers are extremely focused on the supply chain and trying to make it as smooth as possible. Longer term, will we see some of the supply chain come back in-house, there was a push and a number of years to go to try and outsource more and more of the manufacturing process I think that strategy has reached its conclusion and we may see some crucial parts supply chain over the coming years go back into the main OEMs.

The next question comes from Kristine Liwag from Bank of America Merrill Lynch.

Hey good afternoon guys. Gus with your 91% lease placement through 2019 which aircraft types do you still have left to place and what does placement look like for 2020.

You know look as I just mentioned Kristine on 2020 just before this call we had a debate whether or not to give up nearly every remaining A320 Neo lease commitment we have for our customer in 2020. So there's very strong demands on the 2020 slots, particularly on the narrow bodies it’s more a question of do we hold stuff back at the moment for future campaigns or not. The 2019 slot we have very few airplanes left, there are one wide bodied and a couple of narrow bodies but we would expect those to go very shortly in the coming weeks.

That's helpful and for the 787s that you're placing in the market, how are operators using these aircraft, are these largely replacement, new city pairs, can you provide any detail like that.

Sure, for the people who would take them into service there's a period of training where they will go on short haul missions and you'll see, you might see some high cycle time on some 787 fleet at the very beginning as the airlines put them on very short haul missions for training purposes. Now having said that where do we see them mainly operating. They tend to be on point to point of existing city pairs. They are opening up new pairs that's more the 787-8 cause it's more of a path fine there was a smaller machine used for that it's risky to start up a new city pair with a smaller machine and then once the business case is solidated you put in the bigger machine, the 787-9. But for the most part the 787-9 is operating on existing routes where it is a more efficient operator than the previous aircraft and of course we're just seeing more traffic on a global basis every year as we have done every year since the inception of the industry.

The next question comes from Helane Becker from Cowen and Company.

Hey guys it’s actually Conor Cunningham in for Helane. So your comments on the Bombardier Airbus JV are interesting. If you think the 100 seat market has been somewhat validated, then it would appear that you guys are somewhat underindexed to the product, can you just talk about the long term opportunity there. Or is it a more of a wait and see for the asset type right now.

Well I think it's a 100 to a 140 odd seat market. I think at the heart of that market we'll be in 120 to 135 odd seats, I think that's where the heart of that market will be. We do see a lot of airlines looking at the aircraft type. Generally though these decisions are made much closer in than the A320 737 decisions because the A320 737s make up the vast majority of an airline fleet. The smaller aircraft tends to be a much smaller part of the fleet, so the decision for that tends to lag a bit. But as I said we do believe that the announcement of the Airbus involvement in the Bombardier program is pretty positive and validation of the segment.

Okay. Great. And then – we appreciate the color that you gave on the remarked aircraft and the bankruptcies. Is it safe to assume that the asset impairment charge in the quarter was all related to the A330? Thanks.

No, no. Actually the asset impairments charge really related to some older aircraft where we got the – these were scheduled redeliveries. And basically the deal that we had negotiated with the airline was that they would not reinvest in the aircraft and they would basically make a big end of lease payment to us – at the end of those leases. And so what happened is we ended up getting those payments and then once you do that and you have to recognize an offsetting impairment because effectively the aircraft hasn’t been invested in. So we made a conscious decision rather than reinvesting in the aircraft to just take that cash. And that’s why I say the amount of cash that we got was more than the impairment, but that’s really just the way the accounting works for it. So that was without ropes.

The economic deal was done several years ago. This was three fold wide-body airplanes with six engines. We said to under the terms of the lease, the customers obligated to hand us back close to fresh engine from an overhaul. We said to the customer don’t do that and don’t overhaul the engines just keep it to the end of the lease. Pay off the cash that would have gone into the overhaul of the engine because these are very old aircraft, and we wouldn’t have got the money back, they wouldn’t have gone on for another 15 odd years. So we just said don’t overhaul them, give it back to us. But that was put in place several years ago. So is not related to the Arab airline aircraft.

The next question comes from the Scott Valentin of Compass Point.

Good morning. Thanks for taking my question. With regard to the overall financing environment, there’s been concern about, I guess, Asian capital __ aggressively pricing lease factors. One is mainly changed there in terms of your competition is diminished somewhat. We’re seeing stabilization of lease factors.

There is, of course. And capital – and significant amount of capital has come into the market. Why is it come in? I think it’s important. I think that this was a niche asset class. If you go back 7 or 8 years ago, it’s mature significantly. And people see that the business is – why it is in the aviation business. It is not. The returns in it are generally not cyclical. As you can see from our own margins, they are not cyclical if you go back over the last twelve odd years. You see that they’re fairly stable. And I think many investors have realized this. The investors that are coming in very, very few of them, any really are trying to build big global platforms. Some of them do use the sale leaseback market at the entry ticket in where they could just put capital to work and they can say okay to us, do anything with that airplane for 10 or 12 years, and then I worry about us. We certainly do see that. But many of those participants are not building, have been platforms, we have not executed an open market sale leaseback since December 2013. We do bid on them every week. Having said that we have generated huge value for the shareholders through other means, be it the forward orders where you don’t have that type of capital participating or through the buyback up our own shares and, of course, sales of aircraft to the new entrants into the sector.

Okay. Thanks. That’s very helpful. And then just in terms of, Aengus, mentioned you have done a sale lease back 2013, but in terms of portfolio opportunities, is that something that’s fishing more and more of that fell interest you at the right price.

Oh for sure, I mean at the right price we will be aggressive. Look key competitive advantage of our scale is that we garner more information from the market than anyone else every 24 hours that information is compiled and used, and so when we do see opportunity that we believe and we will be extremely aggressive in going after if it’s there in big size, be that on the orders, be that on portfolio sales or on sale leaseback transaction or buying our own shares for that matter. So when, if and when we do see those opportunities that we believe are the right mix of assets we will be very aggressive.

One final question just Peter mentioned that the financial impact on '17 I don't think that's a good [indiscernible] on the delayed aircraft but more in terms of payment, I assume other payments being made to you by Airbus's delays and then are you required to make payments to the Chinese leftovers for those delays.

Sure, sure, sure, sure. We can't comment too much on that, the entity that is most impacted by these delays are the short term delays is the airlines. So there is generally support provided by the manufacturer to the airline. We of course are impacted also and we also receive an element of compensation to do with that also. But these are relatively near term issues, we do not see anything like what happened with the 787 where of course we were hurt because of the extremely long delays that occurred and there was very significant compensation paid to this company due to that. We do not see that type of scenario at the moment.

We'll now take our final question from Gary Liebowitz from Wells Fargo. Please go ahead.

Yes. Peter is a 9% margin on asset sales a reasonable number to use going forward.

Well Gary as you've seen this number moves around a fair amount. I'd say you know if you look at over the past couple of years it's really averaged between 5 and 10%. Now again that's going to depend in any given quarter on the assets that we're selling. So medium to lower end of that range as well. But you know that's basically where it's been so I wouldn't say is it going to be 9% every quarter, no. But I think you know between 5 and 10 is what we have seen.

How should we think of share based comp transfer next year.

Well share based, actually I'm going to go through as part of the investor day in a couple of weeks, I'll go through all the guidance for 2018 and 2019 so it probably makes sense to discuss it then.

Okay, just one quickly for Gus, I know it’s only like four months ago you placed that 787 order but just wondering if there's any market traction have you signed in [indiscernible] placement.

We are starting to move them Gary. We are starting to move them.

That concludes today's question and answer session. At this time I'll turn the conference back to our hosts for any additional or closing remarks.

Thank you, Operator. That completes our earnings call for the third quarter. We hope to see many of you at our upcoming investor day in New York on November 13th. Operator you may close the line.