Aercap Holdings N.V. 2026 Q3 Earnings Call

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 3, 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 4, 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 5, 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 6, 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.