AerCap Holdings N.V. (AER) Q3 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the AerCap Holdings N.V. Q3 2026 financial results call. Today's conference is being recorded, and a transcript will be available following the call on the company's website. At this time, I'll turn the conference over to Mr. Adi Padva, Head of Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome to AerCap's third quarter 2026 earnings call. With me today are CEO Aengus Kelly and our CFO, Pete Juhas. Please note that today's call may contain forward-looking statements which involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. Further information concerning these issues can be found in AerCap's latest earnings release and our filing with the SEC. A copy of the earnings release and conference call presentations are available on our website at aercap.com. We undertake no duty to update any forward-looking statement except required by law. I'll now turn the call over to our CEO, Aengus Kelly.

Thank you for joining us for our third quarter 2026 earnings call. AerCap delivered another excellent quarter, with record performance across a number of key financial metrics, leading us to raise our full year 2026 guidance. Our results once again demonstrate the resilience and stability of the global platform we have built over two decades as a public company. Starting with our financial highlights on slide three, we delivered record adjusted earnings per share of $6.56 in the third quarter, translating to a record adjusted return on equity of 22%. Demand for our assets remains strong and continues to outstrip available supply. While this dynamic is supporting lease rates and asset sale opportunities, AerCap's long-term performance is driven by our ability to actively manage and optimize assets throughout their life cycle. It is this capability that continues to differentiate our platform and underpins our strong view of the business going forward. We continued to return significant capital to shareholders in the third quarter, repurchasing $783 million worth of shares and just over $2.2 billion year-to-date, representing approximately 10% of AerCap's outstanding shares at the beginning of the year. Reflecting our performance and positive outlook, we are raising our full year 2026 earnings guidance to $20.70 per share, excluding any additional gains on asset sales in the fourth quarter. Turning to our core leasing business and current industry dynamics, while our discussions with customers focus on long-term fleet planning decisions, those that determine capacity years into the future, higher jet fuel prices have created uncertainty for some airlines and are impacting their near-term profitability. If jet fuel remains at these elevated levels, we would expect airlines to seek proactive measures to strengthen liquidity and protect their balance sheets. Our platform is uniquely positioned to navigate challenges the airline industry faces. In many instances, this type of backdrop can create opportunities for AerCap, such as through incremental sale and leaseback activities. Today, our order book is fully placed through the end of 2027 and 80% placed through the end of 2028. This is taking into account the 131 new aircraft added to our order book this year. Combined with an average remaining lease term of over seven years, this gives us tremendous visibility into future earnings and underscores the durability of our business model. Turning to slide four, let me begin by saying that we've continued to take advantage of the very strong secondary market to improve the quality of our portfolio. During the third quarter, we sold 70 owned assets for $1.1 billion of sales proceeds at an unlevered gain on sale margin of 45%, equivalent to 2.6 times book equity. Today, 83% of our aircraft fleet is comprised of new technology or freighter aircraft, a direct result of our continued focus on portfolio optimization for the last 15 years. Turning to the growth of our order book, you have heard me say before that it cannot be a buyer's and a seller's market at the same time. Yet, despite a highly constrained supply environment, we have significantly expanded our order book since 2024 without compromising our return thresholds. Our scale and industry relationships have given us access to opportunities that others simply cannot reach. Today, we have an order book of new technology aircraft with delivery positions beginning in 2027 that we believe will create substantial long-term shareholder value. Continuing with the theme of capital allocation, AerCap has been defined throughout its history by the balanced deployment of capital across growth, shareholder returns, and financial strength. As we show on slide five, since the closing the GECAS acquisition at the end of 2021, we have committed more than $30 billion to new technology assets, repurchased almost 40% of our outstanding shares, and continued to strengthen our balance sheet. Today, AerCap is a high investment grade company with BBB+ Baa1 credit ratings. Turning to slide six, our performance since 2022 demonstrates the successful execution of our strategy. Over that period, AerCap has delivered compound annual growth of 23% in adjusted earnings per share and 18% in book value per share. Our superior long-term returns are the result of a platform that combines global scale, unique information advantages, deep customer relationships, and ownership of the most valuable aviation assets. In closing, this business is not simply about buying, leasing, and selling aircraft. It is about actively managing aviation assets throughout their life cycle, allocating capital where we see the most attractive return, and using our market leadership and expertise to create value at every stage of ownership. This is what makes AerCap's earnings power durable and continues to drive long-term value creation for our shareholders. I will now hand the call over to Pete to review the financials in more detail.

Thanks, Gus. Good morning, everyone. AerCap delivered another record quarter. I will start by reviewing our financial results on slide seven. Our GAAP net income for the third quarter was $949 million, or $6.17 per share. The impact of purchase accounting adjustments was $71 million for the quarter, or $0.46 a share. That includes lease premium amortization of $23 million, maintenance rights amortization of $35 million related to maintenance revenue, and maintenance rights amortization of $14 million related to leasing expenses. The net tax effect of all these items was $11 million, or $0.07 a share. As a result, our adjusted net income for the third quarter was $1.09 billion, or $6.56 per share. That represents adjusted ROE of 22% for the quarter. Turning to slide eight, I will briefly go through the main drivers that affected our results for the quarter. Basic lease rents were $1.698 billion, reflecting continued growth in our fleet and a strong leasing environment. Maintenance revenues remained elevated during the third quarter at $267 million before purchase accounting adjustments. Our net maintenance contribution, which is maintenance revenue less leasing expenses after taking purchase accounting adjustments into account, was $184 million for the quarter. As we have noted previously, maintenance contribution is event-driven and can vary significantly from quarter to quarter. Our net maintenance contribution has been particularly strong this year, which is based on a number of factors, including the timing of end-of-lease compensation, maintenance reserve releases, buyouts, and transition activity. We would expect net maintenance contribution to return to a more normal level of $50 million a quarter in 2027. Net gain on sale of assets was $353 million for the third quarter. The sales environment remains very strong, and we sold 70 of our owned assets for total sales revenue of $1.1 billion, with an unlevered gain on sale margin of approximately 45%. Other income was $97 million, primarily consisting of interest income and management fee income. In the third quarter, we also recognized $27 million of other income related to sales of investments. Interest expense was $475 million for the third quarter. Leasing expenses were $131 million, including $14 million of maintenance rights amortization. Income from equity method investments was $73 million in the third quarter. That was higher than normal due to income from our SES joint venture. Income tax expense was $123 million for the quarter, reflecting an effective tax rate of 12.3%. That is lower than usual due to some discrete tax items. Excluding those items, for the full year, we would expect our effective tax rate to be approximately 15%. Turning to slide nine, our liquidity position continues to be very strong. As of September 30th, our total sources of liquidity were approximately $22 billion. This includes approximately $2.5 billion of cash, $10 billion of revolvers, and $3 billion of other committed facilities, as well as estimated asset sales and operating cash flow. Our sources to uses coverage ratio was 1.8 times, which reflects excess cash coverage of around $10 billion. Our adjusted leverage ratio at the end of September remains similar to last quarter at two times net debt to equity. Our operating cash flow was $1.8 billion for the quarter. Our secured debt to total assets ratio decreased to 8%, down from 9% last quarter. Our average cost of debt was 4.2%, the same as last quarter. During the third quarter, we bought back 5.3 million shares for a total of approximately $783 million. We also announced a new $1 billion share repurchase program in September. As Gus mentioned, for the first nine months of 2026, we returned more than $2.2 billion to shareholders through share repurchases, representing approximately 10% of the shares outstanding at the beginning of the year. In addition, we made our 10th consecutive quarterly dividend payment. We have increased our dividend each year and have paid over $500 million in dividends since the introduction of our dividend in 2024. Turning to slide 10. Following our continued strong performance during the third quarter, we are raising our full year 2026 adjusted EPS guidance, and we now expect adjusted EPS of approximately $20.70 for the full year. This reflects approximately $16 of adjusted EPS, excluding gains on sale. It also includes $4.70 of gains on sale recognized during the first nine months of the year. It is before any additional gains on sale for the fourth quarter. The principal drivers of the outperformance relative to our previous guidance have been strong gains on asset sales, higher net maintenance contribution, and higher other income. We generated approximately $866 million of gains on sale during the first nine months of 2026, including a record $353 million in the third quarter. Last quarter, I said we expected asset sales for the full year to be in the range of $4 billion-$5 billion. However, based on our performance to date and the continued strength of the sales market, we currently expect full year 2026 asset sales to come in over $5 billion. Our net maintenance contribution has been particularly strong for the first nine months of this year at $453 million. As I mentioned earlier, we would expect it to return to a more normal level of around $50 million a quarter in 2027. Other income was also higher than normal at $266 million for the first nine months of the year. In closing, AerCap continued its strong performance with another record quarter. We generated adjusted EPS of $6.56, adjusted ROE of 22%, and gain on sale of $353 million. Today, we are raising our full year adjusted EPS guidance to approximately $20.70, before including any additional fourth quarter gains on sale. This positive outlook and strong performance to date reflect the strength of our platform, the quality of our portfolio, and our disciplined approach to capital allocation. With that, operator, we can open up the call for Q&A.

Thank you. To ask a question on today's call, please signal by pressing star one on your telephone keypad. Please limit yourself to one question and one follow-up. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to ask a question. And we will go first to Jamie Baker with JPMorgan.

Oh, thanks, everybody. Gus, one lessor that was here in New York last week for Airline Economics mentioned that certain appraisers believe certain mid-life values and lease rates have peaked, a little bit more on narrowbodies than widebodies. I do not know, it sounds plausible, given what is happening with fuel and Spirit's shutdown and capacity cuts and all that. But the lessor in question, Middle East-based, by the way, specifically said they are not seeing that and the appraisers are wrong. We are not uniquely concerned, but I do not know, directionally, Mark and I wanted to ask, which side you come down on in this regard?

Thanks, Jamie. I can only talk to AerCap, and you can see in the quarter what we did with selling a wide array of assets, so 70 aircraft, and generated 2.6 times book equity in our gain on sale. That is a combination of having the right assets. We have been looking at this portfolio for 15 years, always every day. Where do we want the portfolio to be in 10 years? Not tomorrow, not the day after, not yesterday. Looking at the trends, where the industry is going, and that shapes our portfolio for the future. We are highly confident that the assets we have are very well positioned for the future, and that is evidenced by the results that you see this quarter, and in fact, pretty much every quarter for a long time.

Excellent. Thanks for that. Then for Pete, if we could just quickly revisit financial policy. Obviously, the model is working. Leverage is nicely below 2.7x target. But any updated thoughts since, well, basically since we spoke 90 days ago, in terms of tightening this maybe to the 2.5x and making a stronger argument for low A ratings. With base rates obviously up and spread dispersion increasing, it just seems to Mark and me that the benefit of borrowing costs with an A rating would be, I do not know, increasingly advantageous. Thanks in advance.

Sure. Thanks, Jamie. Yes, look, we would welcome an upgrade, and I think the performance of the company, in many ways, you can see how strongly we have performed over many years, would certainly merit an upgrade. That being said, we haven't changed any of our policies. Our stated target of leverage is 2.7x. But as you noted, we have been running well below that for a while. The main driver of that really has been just the extremely strong earnings that we have produced quarter after quarter over the last year, and even before that, but particularly this year. Even though we have been buying back a lot of stock, 10% of the stock so far year-to-date, nonetheless, just given how much capital we have been generating, the leverage ratio has continued to stay where it has been, at around 2x. I do think that that will increase going forward. That is our plan. But obviously, given these strong results, that is depressing that leverage ratio.

That's great. Thanks.

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

Great. Thanks. Gus and Pete, as you look at the combination of the order book, which really does start picking up in Q4, the Spirit and Frontier and the other kind of opportunities that might arise, how do you think about sort of CapEx over the coming year or two and how does that translate into kind of, or does that translate into growth in dollars of basic lease rents?

Well, I can start out with that. Sure. Moshe, if we look at CapEx for fourth quarter, cash CapEx should be around $1.5 billion for the rest of this year, and then 2026, around $6 billion, 2027, maybe $5.5 billion or so. We could add to that, obviously. You've seen, particularly on the engine side, those tend to be shorter in, so I wouldn't be surprised if you saw some additions to that from there. If there are other things that we can do in terms of sale leasebacks, maybe that adds to that. Obviously, on the other side, you can see some delays as well, as you're well aware. But roughly, those are the numbers that we're looking at over the next couple of years.

Great. Just to follow up—

Moshe, I would add there. Sorry, Moshe, I would add there, if you just step back and look at the company today, we're generating record ROEs.

Yeah.

We are generating record cash flow, but the balance sheet is a fortress balance sheet. It's never been stronger. 2:1 debt equity, high investment-grade company, BBB+, Baa1, returning massive amounts to shareholders, but vitally still, we have the ability tomorrow, if we wished, to deploy $14 billion approximately of capital if we wanted to. We have $3.7 billion of available excess equity. You lever that up, it's $14 billion. It's a very enviable position for the company to be in, and it hasn't come at the sacrifice of any shareholder returns at all.

Right. Clearly. The follow-up question that I wanted to ask also kind of dovetails into that because you've been selling a higher percentage of the fleet, I guess, at higher gains. You mentioned that probably going to stay high in Q4. As you kind of look at the fleet and are thinking about that optimization, is there a way to think about what percentage of the fleet you enter 2027 that could be subject to that? Is there just any way that we could sort of think about how to think about that percentage of the fleet that's up for sale in the future?

Well, Moshe, I'll hand over to Pete in a second. First of all, the reason we sell assets is always with the long-term strategy of where do we want the portfolio to be in 10, 15 years' time. It's because of that long-dated thinking 15 years ago that the portfolio is where it is today. 83% focused on new tech assets or freight, and freight is the strongest part of the market of all, and one that we expect to grow. I would say sales have been elevated in the last year or two, driven in some part by our focus on reducing our Chinese exposure, which has fallen very significantly over the course of the last four years. I'd expect as we go into 2027, 2028, that those sales of Chinese assets will slow down as our exposure has reduced materially there. Pete, anything you want to add?

Yeah. I mentioned, Moshe, in my prepared remarks that we expect to have sales of over $5 billion this year. So that is an extraordinary number. More typically, we would generally guide to $2.5 billion-$3 billion of sales. So I would expect at this point it probably normalizes to something like that. But it really depends, and obviously it could be higher. The market has been extremely strong, and we have been selling into that.

Great. Thanks very much.

Sure.

We'll go next to Shannon Doherty with Deutsche Bank.

Oh, hey. Yeah, thanks for taking my question. Gus, it's hard to imagine that lease rates go up much more from here if the high fuel price environment lasts through next year. Which assets are being most impacted today? Or is it possible that the supply environment remains so constrained that lease rates can move higher?

I'd say, Shannon, where lease rates go is more a function of interest rates. Lease rates go up if interest rates go up. I can tell you that now. Any aircraft in our order book that's leased to deliver in the next two years, if interest rates go up, it goes up with them. That happens. It's in the contracts. In the spot market, if you are in assets heavily focused on older tech assets, that may be a more challenging market in the near term. But where AerCap is focused in the freight business, in the new tech, in particularly our engine business, we don't see that type of pressure. There'll be the odd asset here and there if we have to take them back, but that's the general cut and thrust of the business. I wouldn't say that for AerCap's asset base, as we look out over the next few years, that I would see any significant movement in lease rates other than that that's driven by interest rates, apart from the odd one here and there.

Thanks. As my follow-up, one engine lessor recently noted that spare engine values could begin to come down, just given the large number of young narrowbodies being torn down for engines and spare parts and that hitting the market. We're at something like over 100 narrowbodies that have been parted out. It's pretty amazing. Do you agree with this view?

Look, we are by far and away the biggest engine lessor in the world, and we have a lot more visibility than anyone else, and I think we are going to see sustained engine demand for a long time to come. The key to the valuation or the demand for engines will be, can the time on wing of new technology assets improve dramatically in harsh environments? I think that is a question for the engine OEMs. I don't see that happening. There'll be gradual improvements, but I don't really see that happening. Harsh environments 30 years ago were a minority of the global economy, but as emerging markets have boomed, what we have seen is that a much greater portion of the global economy is focused in those countries that have harsher climates, and I really don't see demand for new tech engines tapering off. Then again, if you're in certain engine types that are old technology that had a boost recently, then perhaps the statement you're saying could be true all right. But that's not where AerCap is focused. We've always looked to the long term and the future.

Thanks, guys.

We'll go next to Ron Epstein with Bank of America.

Hey. Good morning, guys. Good morning, Gus and team. Maybe just two quick ones. As a follow-up to the previous question, Gus, what's your expectation just for aircraft retirements as we go into next year and the following year? There's some debate in the market if we're going to see some tidal wave of retirements or not, and then how would that impact you guys?

I doubt we'll see a tidal wave, particularly in the widebodies. The widebody market is extraordinarily strong. We're seeing customers overhaul A380 interiors. That says everything, Ron, right there. We're at most fuel inefficient aircraft ever built, and it is being overhauled with $25 million interior cabin spends. That is all I can say about the widebody market. I don't think I can say anything else about how strong it is. On the narrowbodies, I think it's fair to say, all right, will we see large retirements? Probably not. We will see some for sure if oil stays high. Again, Ron, as it pertains to AerCap, as I mentioned, 83% of our book is new tech and it is freight business, and our exposure to the other assets is mainly focused on the high demand, those like the 737s, A320s, A330s. From our perspective, I don't see it having an impact on us. But like everything in life, Ron, you may have had guys who are out there buying different asset types, different asset quality, different maintenance standards. A key really is when you're transitioning, if an asset comes back to you, if you bought an asset off someone and the asset comes back, and the maintenance return condition, if you don't have the expertise to manage maintenance return, to manage the paperwork, to manage the transition from one jurisdiction to another, which is a very difficult thing to do, then I suspect that's where some guys could get caught out because very few people have the infrastructure to rapidly and efficiently move aging assets around the world. We do, of course, and we do it more than anyone.

Got you. Then maybe a question for Pete. Why is maintenance revenues less leasing expenses going to be around $50 million annualized? You guys have usually been pretty ahead of this. Just trying to understand, is this a conservative view or how are you thinking about that?

Well, Ron, that's normally what we would expect over the long term to be around that number, $50 million. If I look back at, say, 2025, we were around $200 million for the full year. In 2024, we are around $160 million. So it's in that ballpark. This year, it's been much higher, and really that's driven by three key factors. The first is we've had a significant number of large end-of-lease payments on older assets this quarter, but also throughout this year. So that's contributed. Second, we've had higher buyout income. So these are maintenance buyouts that we do on leases, mostly for older aircraft. Third, we've had some lease terminations that result in an upfront release of maintenance reserves. So, it always depends upon the transactions that you have coming through each quarter. That's why it tends to bounce around. But all of those things have been quite strong this year. But over time, we expect those to normalize and get back down to that around $50 million net technical number per quarter.

Got you. Cool. Thank you.

Sure.

We will take our next question from John Godyn with Citigroup.

John. Gus, obviously financial distress is a topic again with fuel prices where they are, and the prospect of escalation, I guess, in the Middle East post the U.S. midterms. Can you just do a bit of around the world update on what you are seeing in different regions and just give us a general temperature check on financial distress as you see it, if fuel stays here?

Sure. Now, of course, everyone says the solution to high oil is high oil, and ultimately that will be true. But you are right. Of course, there are airlines in different parts of the world that do face challenges. I would say it is not so much by geography. A lot of it is to do with the product offering that they have. For the most part, those airlines that are catering solely to an economy class, low fare model without the ability to offer a product that has some price inelasticity or demand inelasticity, those guys are struggling a bit. So I would say, and particularly where they have to fly long haul. Because it is not so bad if you are a Ryanair bouncing around Europe where your average stage length is two hours. You are not really killing yourself with fuel with a low fare model, if you are very low cost based. But if you are flying five hours, fuel is a much more important part of your network. So I would say the guys that we would be more concerned about is the longer haul, four at 3.5 to five-hour stage lengths, low cost model. That is just under a bit of pressure because their customer base can only pay so much. But most of the airlines around the world are able to pass on, to varying degrees, a reasonable proportion of the increase in fuel costs. If we look back, though, of our history over the last 20+ years as a public company, our bad debt costs, our credit costs have averaged less than 1% a year. So AerCap is uniquely positioned to move assets around the world because of the infrastructure, if we have it, to use different methods to monetize the assets. Do we sell them? Do we put them into the engine business? Do we put them into our part out business, et cetera? And again, with the scale that we have around the world enables us to do things that simply others cannot. And no one is wishing for the continuation of the war, of course, or high fuel prices and stress with our customers. But in the past, that has sometimes presented opportunities for us, which we have been able to take advantage of.

That is a great overview. Just changing gears, could I revisit aeroderivatives and just get your latest thinking there? All the demands on power from AI, all those forecasts just keep going higher. And it seems like we are at a point where the rubber meets the road on that. So I am curious where you guys stand.

Sure. I did reference that in the last call, and it is something we have looked at very closely for now 10 months. There is a number of factors involved, as I referenced before, the longevity of demand, which is vital because it is a very expensive thing to do. The hurdle rate that an engine in AerCap, the alternative use of that engine in AerCap has to get to is very high, as you can see from our results, the consistency of our results, and then finding the right partners to do it. We have had significant discussions. Now, look, all that being said, of course, we are selling engines to people who are going into the aeroderivative business. And I would say this, of course, if you have power now, as I referenced on the prior call, if there is a significant premium, a very significant premium available to you right now if you have power now. Whether that premium will be there in six, eight, 10 years' time when it is what you need, given the investment you make, is less clear.

Okay. Thank you.

We will go next to Catherine O'Brien with Goldman Sachs.

Hey, good morning, team. Thanks for the time. Maybe one more on the asset sales. Would it be fair to say that the elevated sales of the last two years were really driven more by portfolio management versus, I have heard this from a few people, trying to cash in on gain on sale margin driven by some view of the cycle? And I guess, any thoughts on how we should think about the level of asset sales going forward on a high level over the next couple of years? Is there maybe a good rule of thumb in terms of percentage of the fleet tied to average age or something? Or it is really just entirely situational based on the information you have each year?

Well, Catherine, it's never entirely situational. It's very thoughtful, strategic over the last 15 years. I think you may have seen what we call our sunshine charts, which show how we shaped the portfolio over the last 15 years and the assets we sold. The consistency with the type of assets we've sold. So gain on sale is never the driver. Gain on sale would be, as I say, fool's gold. If I'm selling assets to maximize gain on sale, and I sell my best assets to do it, the portfolio that we have on average is weakening all the time. It's getting worse. Then I'm compounding that error by going out and buying shares in it. So that is very poor use of shareholder money, very poor stewardship of the platform. Our view has always been very consistent. This is where the portfolio is driving towards, and these are the assets we're selling. It's not being sold for gain on sale, because that will take care of itself. If you manage the asset well, you've managed the maintenance condition of the asset throughout its life, you'll get the best price in the market whenever you go to sell it. Now, sales have been elevated over the last couple of years, of course, because there has been a reduction in the China exposure, and they have been, on a value basis, absolute value basis, bigger assets, because they've been newer assets. Whereas assets we've sold outside of China have tended to be lower value. Pete, anything you want to add?

I guess I would just add, in terms of the margins, as I mentioned last quarter, they do move around every quarter, just depending on the assets that happen to be sold in a particular quarter. This quarter, we saw it quite high at 45%. Last quarter was 20%, previous quarter was 24. So that is going to bounce around. I think it's hard to discern a trend based on any single quarter. But this quarter, it was really driven mainly by, we had very strong gains on sale on engines and mid-life and older assets. But across the board, we saw strong gains on sale for everything that we sold.

That's great. Really helpful reminder of the long-term focus here on the asset sales. Maybe just one more for you guys. When fuel first began its run, you shared you thought airlines would wait before making any major fleet plan changes, which as far as I can tell from my admittedly U.S.-centric point of view, has proven right. There does seem to be a shift to management teams thinking by higher for longer prices. Have you observed any pivots on fleet planning, maybe in terms of lower extension rate at AerCap or airlines. I think we've already touched a little bit on the retirement topic, but conversely, trying to find a way to take more fuel efficient new aircraft? Understandably, the market's tight. It just would be interesting to hear some of the puts and takes, like if you're starting to see movement on longer term decisions. Thanks.

Look, well, certainly as it relates to the bulk of our business. So if we look at the new tech assets, no one's changing their fleet plans of what they're thinking of doing in 2028, 2029, et cetera. Those discussions are still very robust. The freight business is very robust. The engine business is very robust. But look, if we do continue to see elevated fuel prices here, I would expect to see reduced flying of the less fuel efficient assets, particularly if they're going to have to fly on longer routes. So that, I think, you would see. That doesn't mean an airline can hand back any asset to you. But from our perspective, that's a very small proportion of our portfolio. They're all leased out pretty much to the end of their lives anyway. So I would be, from the impact on AerCap, I don't think it'll have a huge effect really, to be honest. I referenced earlier. But as we go through the next 12 months, if we do stay at these high fuel prices, I think we'll see reduced flying of that asset type. But I want to be very careful to say that isn't really a huge impact for us because they're A, very low dollar value assets. They're generally out on lease or we'll consume through our engine business or our parts business if we have to.

That's great. Very clear. Thanks for the time.

We'll take our next question from Terry Ma with Barclays.

Hey, thank you. Good morning. Maybe just to follow up on the leverage question. We all know what the target leverage level is, but if the business continues to outperform your expectations, is there a practical floor you do not want to operate below with respect to the leverage? If those larger capital deployment opportunities remain limited, how should we think about just the buyback?

Well, you can see, Terry, maybe I will start and then Gus can chime in. Look, we have been doing a lot of buybacks. Our expectation is that we would not fall lower below our current leverage ratio. But it is all looking at the various opportunities that are out there. We have been buying back stock, but we have also been buying assets. As you saw from Gus's presentation, those are significant numbers that we have added to the order book. Those will come through. They are not immediate, but they do come through over time, and we will look to continue to do those. But maybe Gus, I will turn it over to you for any comments.

No, I think, look, we have always been very active in the market when there is opportunity, and the good news is that the company has never had a stronger balance sheet in its history. As I said, we have a vast amount of capital available to us today, and whether we deploy that in buybacks, assets there, or asset purchases, et cetera, we will always do what we believe is in the best long-term interest of the shareholders.

Got it. That is helpful. Pete, maybe just update us on the net spread outlook. I think you have a large slug of debt to end of this month. When you factor in the assets coming back onto lease, and just everything else, what is the outlook over the next few quarters?

Sure. So the net spread this quarter for the third quarter was 8.1%, and it's really moved. It stayed between 8% and 8.1% over the last several quarters. I'd expect it to stay about that level for the next couple of quarters. Over time, we should see some modest increase in that as we get the Spirit aircraft continue to come back on lease, you get some of the benefits of the COVID era leases rolling off, as we've talked about before. But as you mentioned, we also have higher interest expense, which is built into that number that I gave you. So, you've got those two competing factors. I think the net effect of that will be some gradual upward movement in the net spread, but over the next couple of quarters, I expect it to remain pretty much where it has been.

Okay, got it. Thank you.

Sure.

We'll go next to Jason Holcomb with Morgan Stanley.

Hey, guys. Gus, last quarter, you described the A321neo as the prime aircraft in the narrowbody market, and you mentioned Max 10 certification would be important for improving the competitive position of the Max 8. Now that the Max 10 has been certified, how do you think about the competitive dynamics between Airbus and Boeing? Could this materially improve leasing demand and residual values across the broader Max family? Or is Airbus's advantage a little bit more structural? Thanks.

I mean, the big challenge now for the Max 10 is getting them into service. Certification is great, and we're thrilled that the team at Boeing got that over the line, along with the FAA. As the biggest owner of aircraft in the world, we really want to see a strong Boeing. We want to see Boeing competitive with Airbus, and this is a key to it. The next step, though, to actually realize that competitiveness is to start delivering the aircraft and in some scale. That is the challenge, of course. Obviously we're aware of what Boeing announced yesterday on their call regarding the ramp up. That is the key. Can the Max 10 get into service in large scale in the next four or five years? That's the key to be competitive with the A321.

Thanks, Gus. Maybe just a quick follow-up for Pete. I think, Pete, coming into 2026, I think the outlook had expected leasing expenses and SG&A to be around $1.2 billion. I think through three quarters where those expenses are now around $770 million. Is there anything abnormal we should be thinking about in 4Q? If not, can you provide some context as to what drove the lower than expected expenses throughout the year?

Sure. On the leasing expenses side, and that's been the main driver of it, that's really because we've seen some maintenance events being pushed out into 2027. That's really what will drive leasing expenses. This quarter was about $110 million, but the last couple of quarters it's been low, and that $110 is relatively low compared to the maintenance revenue that we had. Normally, those move somewhat in tandem, right? I'd say that's been the main driver in pushing those expenses out, and that's one of the reasons why, on the maintenance side, I mentioned that I thought we would get back to the net contribution of $50 million a quarter next year.

Got it. Thank you.

Sure.

We'll go next to Chris Stathoulopoulos with SIG.

Morning, everyone. So one question. Gus, in a higher for fuel scenario, could you give a little bit more context? You mentioned around the SLB opportunities here, and you spoke to earlier around perhaps lower cost carriers. I think with what you said around a three to five hour trip, perhaps being under a little bit more pressure. A little bit more context there, but then also if we could revisit the idea of this barbell approach you have to the portfolio and how that looks within a higher fuel scenario as it relates to the older and current technology. Thank you.

Sure. Well, I should have said, of course, there's nothing wrong with low cost. It's low fare is the challenge. If your costs are low enough, you can have low fares. The challenge is many airlines unfortunately don't have the low cost, but they have the low fare. That problem becomes accentuated as you fly longer distances because fuel just makes up a greater component of the cost base, and you're not getting the incremental revenue to justify the additional flight time. As it relates to the barbell approach, and those of you who have seen it, and I'm sure it's available on our website in the presentations, over 15 years, how we've looked at the portfolio of aircraft has said, because of what we see, so much information we get every day about engine flight cycles through our spare engine business, the biggest in the world. How long engines are spent in the shop, what they're being used for, what airplanes are being used for, what routes they're being used on. All that information is used and has been used consistently to say, look, we wanted to make sure in 2011 odd that when we buy new assets, they want to buy new technology, or we want to buy old variants of existing technology. We were consistent to that and sell any newer, older tech assets. So end-of-run assets you've had to avoid at all costs. So if you were buying A320s, 737s, A330s in 2016. Were you really ever going to get 24 years of life out of them? Unlikely. That proves to be the case. But they looked attractive way back in 2016, when there wasn't much available, and there never is that much available. It's one thing to think about. If you're in the right asset in aviation, you never really get any sustained period of oversupply. Quarter here, quarter there, but that's what I've said many times. You've got to be in the right assets and understand how demand for assets evolves. From our perspective, that barbell is we want to make sure if we're owning older assets, which we do, as I said, a small minority of our portfolio is in 737s, A320s. But the average age of those assets is towards the very end of their useful life. We have them out on lease to the, pretty much, I'd say, in most cases, the end of that useful life, and our carrying values are very low. We can monetize those assets through our engine business and through our parts business. As I look at our own portfolio, I don't see that as a threat because of the very long-term planning and understanding of demands from the customer base and how we've executed on that over a very long period of time.

Okay. Thank you.

We'll go next to Arren Cyganovich with Truist Securities.

Thanks. Gus, I want to talk a little bit about the opportunity from potential sale-leasebacks that you referenced with rising or elevated oil prices. Given your long history and your unique global view of airline health, how long would it take to get to that point where you think that opportunity would start to really present itself to you?

It is something, of course, that we are always looking at how we can work with our customers and if there are things we can do to help them to solidify their balance sheet and their liquidity. Those discussions are ongoing all the time. Of course, I suspect that in the new year, there may be a little bit more intensity around them. But we will, of course, make sure that we are very focused on all of our customer base, those that needs help and how we can do it. But I would say as we look through the next few quarters, I know we will be in discussions as to whether or not they meet the return conditions and thresholds for our shareholders is another matter. But if they do, of course, we will be very aggressive.

Okay. A quick one. Could you just remind me what the interest rate benchmarks that your lease rates are attached to in your contracts for your forward leases?

For the most part, it is the seven-year SOFR. For the most part. Sometimes it will be a treasury rate, but for the most part, it is seven-year SOFR, because that matches the average duration of our lease book and the average duration of our debt. That is the key, of course, as to how AerCap has historically managed its business on the liability side is to run a hedged book.

Great. All right. Thank you.

We'll take our next question from Doug Runte with Deutsche Bank.

Yes, thanks very much. Gus, you highlighted the strength of the widebody market and a great anecdote about the A380. It looks like that tightness is going to continue into the next decade. Yet, if you look at lessor's share of the widebody passenger backlog, it's at a record low, sub 3%. 80% of it is one operator for one aircraft type. I'm wondering what's going on there. Your own order was quite small for the top off for the 787-9. Is it just sale leasebacks are the more appropriate way of adding widebodies? Or should we see someone make a bigger dive into spec orders for widebody passengers?

Well, Doug, look, I'll be honest, I wish I bought a lot more widebodies a couple of years ago. To be fair to Christian Scherer, who ran Airbus, four years ago, he said to me, "You should buy more." We didn't, so mea culpa. What I would say on the widebodies is, of course, we would do more. We did the recent top up, as you noted, on the 787-9. We could have done more. There was more to be done, but there was a point because of escalation and the conditions where it didn't work for us. There were certain things we were able to bring to Boeing to get a portion of the deal to economics that worked for us and our shareholders. If it doesn't, I can buy back all the wide-bodies in the world, Doug, down at the New York Stock Exchange under the ticker AER. There's no shortage of our ability to buy wide-bodies.

Great. Then a quick follow-up. You touched on escalators. We've seen lessors in general creeping further towards the horizon on when they're taking delivery slots. I guess in a world where escalator caps are not as easily available as they might have been five or six years ago, how far out is too far to place a speculative order for a narrowbody or a wide-body airplane?

Well, Doug, as you can see from my answer to the last question, there was a limit where I was willing to go based on what was available on escalation caps. It all depends on what type of escalation protection you're getting. If you don't really have a true cap, then I think going out into the 2030s, 2033, 2034, 2035, it would be a challenge, I think. The recent orders we've put on, for example, I think we did 130 this year. We did 50 odd last year of aircraft. I'm pretty sure that 90% of what those aircraft will deliver before I saw a competitor announce the deal last week for a similar number, and I think theirs start delivering when ours finish. That's a function of the capability of AerCap. As I referenced in my prepared comments, we're able to reach things others just simply can't. Through the combination of our presence with the airlines, our speed, and vitally then our ability to help OEM production through our engine business.

Great. Thanks very much for the answers.

At this time, there are no further questions. I will now turn the call back to Mr. Aengus Kelly for any additional or closing remarks.

Thank you, operator. And thank you all for joining the call. This was another record quarter for AerCap. We raised guidance, and it reflects really the power of the platform. This business is just not about just buying, leasing, and selling aircraft. It is about actively managing every aspect of the assets throughout its life cycle. And then when you generate capital, you have to allocate it correctly. There is no point being able to generate it if you can not allocate it. And that is always at the forefront of our mind. And the combination of those factors is what drives the earnings power and the durability of our earnings for a very long period of time. So thank you all very much for joining us, and we will talk to you in two months' time. Thank you, operator.

Thank you. This does conclude today's call. Thank you for your participation. You may now disconnect.