AerCap Holdings N.V. Q2 FY2025 earnings call

• Strong Q2 results: GAAP net income was $1.3 billion and EPS was $7.09; adjusted net income was $502 million and adjusted EPS was $2.83. Increased 2025 full-year adjusted EPS guidance. - Aircraft demand: High utilization (99%) and extension rates (97%) in Q2. Strong demand for wide-bodies with lease agreements signed for 777 and A330ceo in Q2, and for narrow-bodies with 12 different carriers signed and 26 used aircraft extended. OEM supply shortages starting to change, presenting sale leaseback opportunities. - Engine business: Spare engine demand robust, portfolio of over 1,200 spare engines (90% new technology) supports customers. Partnership with Air France-KLM for engine leasing announced at Paris Air Show. - Liquidity and balance sheet: Strong liquidity with total sources of liquidity ~$22 billion as of June 30. Leverage ratio 2.2:1, bought back over $1 billion of stock YTD, deployed $3 billion in aircraft, expects $3 billion more in CapEx and $800 million in share repurchases.

For the aircraft segment, net gain on sale of assets was $57 million. They sold 18 owned assets during the quarter for total sales revenue of $374 million, resulting in an unlevered gain on sale margin of 18% (equivalent to a multiple of 1.7x book value). On the engine segment, spare engine demand remains robust with a portfolio of over 1,200 spare engines, 90% of which are new technology. They delivered 31 new LEAP engines across the SES and AerCap platforms YTD, with 46 more expected by year-end, and delivered 36 engines to airline customers in Q2 alone under commercial lease agreements. Revenue contribution details weren't explicitly broken down by percentage, but aircraft and engine segments are key areas.

• Increased 2025 full-year adjusted EPS guidance to approximately $11.60. - Expect stock-based compensation expense to return to a more normal run rate of around $30 million per quarter. - Sales expected to be around $2.5 billion for the full year.

• Uncertainty regarding tariffs and trade, though minimal impact on the business so far. - Dependence on OEMs ramping up deliveries to take advantage of sale leaseback opportunities while meeting return targets. - Impact of Azul bankruptcy, but AerCap is fully provisioned and sees minimal current impact.

Q: Maybe just to start off with the partnership with Air France-KLM. Is there any way you can maybe size that opportunity and talk about how much excess capital you kind of deploy into that we kind of take a step back, maybe just update us on how you're thinking about capital allocation.

A: Sure. Let me start with the Air France-KLM joint venture. This opens up another broad customer base to our engine business. And the great advantage for Air France-KLM as they move into the LEAP overhaul business is that they have a partner now that has experience of moving hundreds of LEAP engines around the world on time and on spec for the existing OEM CFM. So that's very important. As regards to how big it will grow, we'll have to see over time. Initially, it will be a small amount, but like all these investments, these are long term in nature like the businesses and something we're looking to regarding the long term. I'll let Pete answer the question on the capital allocation.

Q: Maybe just to start off with the partnership with Air France-KLM. Is there any way you can maybe size that opportunity and talk about how much excess capital you kind of deploy into that we kind of take a step back, maybe just update us on how you're thinking about capital allocation.

A: Sure. Thanks, Gus. So Terry, in terms of capital allocation, so far this year, we've deployed a little over $1 billion for share buybacks. We've also bought $3 billion of aircraft, as Gus mentioned, and we've got another $3 billion of buybacks of CapEx later this year as well as the remaining $800 million in our program. And as we look at it, look, you know we always look at all different alternatives for deploying excess capital. We are seeing some -- what we think will be attractive opportunities with some of the airlines now, now that you're starting to see more aircraft delivering in their order books, we think there will be opportunities there. We also think that there will be opportunities on the engine side to deploy more capital there. And of course, share repurchases continue to be attractive. So I'd say those will be the main avenues as we look out today in terms of deployment of excess capital for the remainder of the year.