Aircastle Limited - Earnings Call - Q1 2026

Executive Summary

• Q1 2026 delivered strong top-line and profitability: total revenues $259.8M (+26.7% YoY) and net income $49.3M vs $16.1M YoY, supported by ~$30.3M gains on aircraft sales and 99.5% fleet utilization.
• Balance sheet quality improved materially: fleet is ~99% unencumbered and debt is ~98% unsecured after a new $600M unsecured term loan; liquidity stood at ~$2.6B (undrawn lines ~$2.0B, cash ~$0.1B).
• Trading pipeline remained active: 12 aircraft acquired ($464.8M) and 14 sold (net proceeds ~$226.8M), with momentum into Q2 via purchase-leasebacks with United (MAX-9) and IndiGo (A321neo).
• Management emphasized a sustained seller’s market and disciplined underwriting despite competitive capital; engines are a monetization focus given market dynamics.
• No formal revenue/EPS guidance; Wall Street consensus via S&P Global was unavailable for AYR; near-term catalysts center on potential rating upgrades and continued PLB execution.

What Went Well and What Went Wrong

What Went Well

• “We’re poised with $2.6B in available liquidity,” enabling continued profitable growth and fast execution in a competitive market.
• Seller’s market and disciplined trading: $30.3M gains on sale of 14 aircraft (avg. age ~19 years); 12 acquisitions with 71% new technology; fleet utilization above 99% for seven consecutive quarters.
• Strategic PLBs and relationships: executed MAX-9 PLBs with United and planned A321neo PLBs with IndiGo, demonstrating relationship-driven sourcing without lowering return standards.

What Went Wrong

• Maintenance revenue declined YoY ($38.1M vs $42.1M), reflecting fewer returns/extensions; impairment charges ($5.1M) and a $3.0M loss on early extinguishment of secured debt trimmed results.
• Interest expense increased ($68.8M vs $64.8M YoY) amid higher average debt and borrowing costs; operating cash flow fell to $127.9M from $147.0M as end-of-lease cash maintenance payments dropped.
• OEM supply constraints and tariffs add macro uncertainty; management is vigilant on near‑term volatility impacting airlines’ capacity planning and asset returns.

Transcript

Operator (participant)

Today, and welcome to the Aircastle Limited first quarter 2025 financial update call. Today's conference is being recorded. At this time, I would like to turn the conference over to James Connelly, Senior Vice President of Corporate Communications. Please go ahead, Mr. Connelly.

James Connelly (SVP of Corporate Communications)

Thank you. Good morning, everyone, and welcome to Aircastle Limited's first quarter 2025 financial update call. With me today are Mike Inglese, Chief Executive Officer, and Roy Chandran, Chief Financial Officer. Other members of the management team are also on the line, and they will be available during Q&A. We will begin the presentation shortly, but I would like to remind everyone that this call is being recorded, and a replay will be available through our website at www.aircastle.com. There you can also find the press release and PowerPoint presentation that accompany this call.

I would like to point out that statements today, which are not historical facts, may be deemed forward-looking statements. Actual results may differ materially from the estimates or expectations expressed in those statements.

Certain facts that could cause actual results to differ materially from Aircastle Limited's expectations are detailed in our SEC filings, which can also be found on our website. I will direct you to Aircastle Limited's press release for the full forward-looking statement legend. With that, I will now turn the call over to Mike.

Michael Inglese (CEO)

Thanks, Jim. Good morning, everyone, and thank you for joining us today. I'm pleased to report that Aircastle finished the first quarter of 2025 with net income of $49 million on total revenues of $260 million. We acquired 12 aircraft during the quarter for $465 million and sold 14 aircraft with an average age of 19 years, netting gains on sale of $30 million. Roy will go into our financial results in more detail, but first I'd like to share some thoughts on the broader aviation market. Last month, IATA hosted their annual general meeting and World Air Transport Summit in New Delhi.

The general consensus from that conference was that despite abundant geopolitical stress points, demand for air travel continues to point to sustaining growth in 2025. Also, across most regions, airline profitability is improving.

For at least the near term, this profitability is being aided by lower oil and jet fuel prices. Despite the slowdown of the U.S. economy, North American airlines are expected to generate the highest absolute profits among the global regions, even though tariffs are likely to dampen consumption and investment.

European airline profits are seen most notably among low-cost carriers, and 2025 looks positive with the prospects of a stronger euro and more aircraft returning to service following engine-related groundings. Healthy demand in Asia-Pacific is expected as a result of easing of visa requirements in several countries, which we expect will encourage both international tourism and travel within the region. Despite regional conflicts, demand growth remains positive in the Middle East, where IATA projects ASKs will rise 4.6% and RPKs will be up around 6.4%.

Currently, Latin America is where airline profitability is most challenged, mostly due to weak domestic currencies and operating costs that are priced in U.S. dollars. However, Argentina's signing of open skies agreements with several countries is a positive development. We believe overall that despite economic uncertainties, people around the world are still prioritizing travel among their consumer choices. Continued vigilance will be required, however, as we're mindful that IATA's previous forecast for global traffic growth of 8% has been lowered to 6%.

Aircraft lessors are likewise benefiting from this generally positive environment. Leas rates have remained fairly consistent for several quarters despite interest rate reductions from the U.S. Federal Reserve and the European Central Bank, which began in the second half of 2024. As of March, Bloomberg had forecasted further rate reductions in the second half of 2025, but the timing of those reductions, especially by the Fed, remains uncertain.

The trading landscape continues to be extremely competitive for acquisitions. For a long time, we've discussed the inability of Boeing and Airbus to deliver new aircraft to meet market demand. It's broadly expected that these shortfalls will continue into the next decade. In addition, the leasing space continues to attract new capital seeking investments. Two weeks ago, Ishka reported that 10 independent aircraft asset managers obtained 21 bilateral equity mandates for mid-life aircraft.

Despite strong competition, Aircastle acquired 12 aircraft in the first quarter, totaling $465 million, 71% which was new tech aircraft. Overall, new tech aircraft accounted for 46% of our fleet at the end of our first fiscal quarter. This momentum continues into our second quarter.

Two weeks ago, we shared on LinkedIn how we completed the 11th of MAX 9 purchase lease back agreements with United, in addition to the first of 11 planned A321neo PLBs with IndiGo in India. In addition, we have three planned MAX 8 purchase lease backs with WestJet. It's still very much a seller's market, and our first quarter gains on sales of $30 million came from the sale of 14 aircraft with an average age of 19 years. These sales included 12 A319s and A321s and the last of our 747s in our fleet.

On behalf of the leadership team and our shareholders, I'd like to thank our global team for their continued success and focus on growing our fleet and our profitability. We continue to expand our network of trading partners who appreciate our professionalism and our team's ability to execute quickly and efficiently.

In this competitive market, having a team of aviation experts, especially with robust engine knowledge, is a distinct competitive advantage for Aircastle. After a profitable first quarter with strategic acquisitions and opportunistic sales, we're continuing our investment strategy, which provides for growing our customer base with the most sought-after narrow-body aircraft on the market. We look forward to continuing our profitable growth goals with our disciplined investment approach.

Having ample liquidity is another competitive advantage, which will enable us to reach those goals. We're poised with $2.6 billion in available liquidity, and during the first quarter, we entered into a new $600 million unsecured term loan, which Roy will touch on in a minute. I'd like to conclude by noting that the first quarter marked the five-year anniversary of our merger with our shareholders, Marubeni Corporation and Mizuho Leasing.

You will recall that five years ago, an unprecedented economic disruption to global aviation had just begun. Despite significant uncertainty at that time, our shareholders were unwavering in their partnership commitment and have since added to their commitment with additional equity in the last two years. The new platform we've built together has elevated our ratings profile and expanded our access to the capital markets around the world.

We want to take this opportunity to thank our shareholders for their support as we continue to commit ourselves to the goals of continually improving our asset portfolio and improving the profitability of Aircastle overall. I'll now pass the call over to Roy, who will go through our first quarter's results in more detail.

Roy Chandran (CFO)

Thanks, Mike. For the first quarter, we generated net income of $49 million on total revenues of $260 million. Top-line lease revenue improved 13% as compared to the first quarter of 2024. Mike mentioned we purchased 12 aircraft, adding $465 million of book value, and sold 14 aircraft during the first quarter, bringing in net sale proceeds of $227 million, with $30 million in gains. Our first quarter Adjusted EBITDA was $232 million, up 25% compared to the first quarter of 2024. For seven consecutive quarters, our fleet utilization has remained above 99%.

The 14 aircraft we sold in the first quarter had an average age of 19 years, and the weighted average age of our fleet at the end of the first quarter was 8.9 years. Turning now to financing and capital. This quarter, we closed on a $600 million unsecured term loan facility.

This marks a return to the term loan market for Aircastle, having repaid a Japanese bank term loan facility previously. This new facility includes 18 participants, the majority of which are vendors based in Japan, Korea, and Taiwan. We see this as a testament to our access to the Asian capital markets, enabled by strong shareholder name recognition, as well as an affirmation by lenders of our credit strength and franchise.

With this new unsecured term loan and the repayment of $392 million of secured financing, our fleet of $8.1 billion is now 99% unencumbered, and our debt is 98% unsecured. The weighted average interest rate on our debt at the end of the first quarter was 5.2%, down approximately 12 basis points from the end of the fiscal year of 2024. Adjusted net debt to equity at the end of the first quarter was 2.2x.

As of July 1st, we had total liquidity of $2.6 billion, composed of $2 billion of undrawn facilities, unrestricted cash of $100 million, and $500 million in projected 12-month adjusted operating cash flows and contracted sales. With our improved profitability and continued shareholder support, we continue to strongly believe we've established a compelling case for a ratings upgrade by S&P and Moody's in the near future.

Over our 20-plus year history, Aircastle has demonstrated the ability to withstand volatility and emerge profitably with ever-improving portfolio metrics. In addition, we continue to benefit from outstanding shareholder support from Marubeni Corporation and Mizuho Leasing. With that, operator, we're happy to open the call up to questions.

Operator (participant)

Thank you very much. If you would like to ask a question, please signal by pressing Star 1 on your telephone keypad. 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 1 to ask the question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. And again, it's Star 1 to ask the question. We will take our first question from Mark Streeter with JPMorgan. You may now begin.

Mark Streeter (Managing Director and Head of Aviation Credit Research)

Great. Thanks. Good morning, everyone. Roy, just I want to circle back to the rating agencies here because I think investors are a little confused with everything going on with parental support and standalone ratings just across the industry, right? Because we have situations like AviLease now, which has mid-BBB ratings because of their parental support. And I sort of look at Aircastle and think, on a standalone basis, you're in the best shape you probably have ever been, right, in terms of your size, unencumbered portfolio.

You mentioned the leverage low two times, etc. So I sort of think on a standalone basis, you are eligible for mid-BBB, which you aren't at yet with S&P and Moody's. And then you get into parental support and Marubeni and Mizuho Leasing, and those are higher-rated entities and so forth.

So I guess what I'm asking is, it seems pretty obvious that you're going to get upgraded to that mid-BBB level by S&P and Moody's soon with the positive outlook, but are you stopping there? Are you trying to make the argument that that should be your standalone rating and that your effective bond rating should be even higher? Is there a path to get you because you have such a BBB plus, is there a path to get S&P and Moody's there as well?

Roy Chandran (CFO)

Hi, Mark. Thanks for the question. So I agree with everything that you said. I think there's clearly a pathway for us. I think we have made the case consistently with the agencies. In terms of treatment, I think there's a bit of an asymmetry in terms of where we are relative to kind of our peers. Obviously, as you've rightly pointed out, as you look at our fleet, portfolio quality, credit quality, liquidity, all the relevant credit metrics, we are significantly better than we were in pre-COVID, right? And so there's definitely a case to move our shadow ratings.

I think there's a bit of a difference between the agencies in terms of how they think about parental support. And I think there's two categories. Obviously, if you're owned by a financial institution or a bank, there's probably a different perspective where you're wholly owned.

is explicit support and guarantees where you're owned by corporations. I think the agencies take a different view. Once again, there's a difference between S&P and Moody's. S&P has held us at a shadow rating of BBB plus, effectively from the point of us going private, and has put us on a positive outlook. Moody's has not changed their ratings. I think we remain very hopeful that we will get to the right answer quickly.

As to the answer to your question in terms of, is there a pathway to sort of further up the credit chain, I think there is. I think it really is a question of, one, what are the trade-offs in terms of getting those ratings?

And typically, I think the agencies, and if you talk to them directly, they will say that Aircastle typically has been held to a higher standard, given that we tend to operate a mid-age fleet. Historically, that's kind of where we put a flag in the ground. And I think their view is that when you operate a mid-age fleet, the credit metrics and the bar is a little higher. So I'm not entirely sure what the criteria is to go from mid-BBB to high-BBB, but that's clearly a strategic objective for us. And as I said, it really is a question of what are the trade-offs required by the agencies.

Mark Streeter (Managing Director and Head of Aviation Credit Research)

Okay. Great. That's very helpful. Thanks, Roy. And then just one question just on some of the recent acquisitions. So the United deal, for example. Now, that was sourced directly from United, correct?

Roy Chandran (CFO)

Yes.

Mark Streeter (Managing Director and Head of Aviation Credit Research)

Okay. So my point is United is one of the world's best airlines, most creditworthy. Anyone would line up to do deals with them. Aircastle does not have the lowest cost of capital. You have competitors that have lower funding costs. So can you just walk through the dynamics of how do you win a deal at United? Because clearly, they're not going to do you any favors, right? They're going to expect very competitive terms.

So when you're in there in the room competing against someone like BOC Aviation that has a lower cost of debt, for example, are you winning a deal like that because you're willing to accept a lower return? Is there something else you bring to the table? Is there a relationship angle here that you're playing? Just sort of wondering what the inside baseball dynamics are of how you win a deal with United Airlines?

Michael Inglese (CEO)

So look, Mark, it is relationship building, but we're not lowering our return standards and our expectations for these assets over time just to have a United logo on our PowerPoint chart. They have lots of airplanes coming in this year and the coming years, and they need a diverse set of people to help support their investment program. So we've been talking to them for years. We have built a relationship, and we thought this was the right time and the right place to make these investments with United.

Mark Streeter (Managing Director and Head of Aviation Credit Research)

Okay. Great. Thanks, Mike. That's helpful. Appreciate the time.

Operator (participant)

As a reminder, it's Star 1 to ask a question. Our next question comes from Doug Runte with Deutsche Bank. You may now begin.

Douglas Runte (Managing Director)

Yes. Good morning, and congratulations on the fifth anniversary. A question about the engine market, and particularly perhaps as it relates to your middle-aged fleet. We're seeing an unusual dynamic now where two engines on a stand are seemingly worth more than two engines attached to a fuselage. I'm wondering, are there opportunities here for you to monetize assets through, I guess, more of a focus on just the engines rather than entire airplanes as we see younger and younger airplanes effectively have fuselages almost thrown away?

Michael Inglese (CEO)

Yeah, Doug, that's a good point. And in fact, we've been sort of using engine management across our whole fleet as part of our strategy over time. And in the past couple of years, we've been doing more engine leasing because of the current dynamic than we had historically. And in some cases, we have fuselages either sitting around or we've taken the engines off and leased them and sold the airframe because that made the most sense.

So every time we have an asset, whether it's coming up for a new placement or things that we're buying, we're thinking about what's the right play and what's the right angle for maximizing the value of those three pieces.

Douglas Runte (Managing Director)

Great. Thanks. And then maybe just to build on Mark's United question, a lot of the strengths that you highlighted that are driving lease rates up also seem to be pointing to an even more competitive market for aircraft acquisitions and lower returns, I guess, particularly with some of the larger lessors having a shrinking order book. I mean, are we in a situation now where, even with lease rates stable and up, that acquisitions are inevitably going to result in potentially lower returns?

Michael Inglese (CEO)

Look, I don't think we've seen it grinding things lower in the current environment over, let's call it, the last 12 months. It's always been and always will be a competitive market, and sometimes you find the right angle for an investment or the relationship and capitalizing on a relationship, but we're not looking at new investments and looking at underwriting to lower return standards.

Douglas Runte (Managing Director)

Great. That was very helpful. Thanks very much, and look forward to seeing you at our conference in September.

Michael Inglese (CEO)

Look forward to it. Thanks, Doug.

Roy Chandran (CFO)

Thanks, Doug.

Operator (participant)

And it appears that there are no additional questions at this time. I'll turn the conference back to James Connelly for any additional remarks.

James Connelly (SVP of Corporate Communications)

I would just want to thank everyone for joining us, and please reach out if you have any questions.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.