Aircastle Limited - Earnings Call - Q4 2025

Executive Summary

• Aircastle has not yet reported Q4 2025 results; the investor site lists only Q1 and Q2 2025 releases, with the latest “Q4” related document being FY 2024/Q4 (three months ended February 28, 2025). Q4 2025 (three months ended February 28, 2026) is expected to be reported around April 2026 based on past cadence.
• Trajectory into Q4 shows durable profitability and fleet growth: Q2 2025 revenue $228M and net income $57M, following Q1 2025 revenue $260M and net income $49M; Adjusted EBITDA rose sequentially to $262M from $232M.
• Liquidity remained strong through 2025: $2.6B as of July 1, 2025 (Q1) with 98% unsecured debt; unencumbered fleet NBV reached $8.0B, supporting trading capacity and capital flexibility.
• No formal numerical guidance is provided; management emphasizes profitable fleet growth, gains on sales, and increasing share of new-technology aircraft, which are key narrative drivers for the next print.

What Went Well and What Went Wrong

What Went Well

• Profitable fleet expansion: “We’re continuing to profitably grow our fleet. In the second quarter, we invested a half billion in aircraft acquisitions while earning $57 million in net income.” — CEO Mike Inglese.
• Strong gains on asset sales: Q2 2025 gains on sale $24M; Q1 2025 gains on sale $30M, demonstrating robust secondary market conditions.
• New-technology mix rising: New tech aircraft comprised 50% of fleet NBV by Q2 2025 (from 46% in Q1), improving residual risk and demand profile.

What Went Wrong

• Sequential revenue volatility: Revenue fell from $260M in Q1 2025 to $228M in Q2 2025, likely driven by the cadence of trading, lease amendments, and asset sales timing (management did not provide formal guidance).
• Competitive acquisition landscape and supply constraints: Management flagged competitive acquisitions and supply shortages extending well into the decade in their investor materials, which can pressure yields and deployment pace.
• Engine and maintenance cycle challenges: Investor presentation notes challenges facing new technology engines extending the utility of current technology fleets, implying continued maintenance and availability risks.

Transcript

Operator (participant)

Today, and welcome to the Aircastle Limited Fourth Quarter and Full Year 2024 Financial Update Call. Today's conference is being recorded. At this time, I would like to turn the conference call 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 Fourth Quarter and Full Year 2024 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. Fiscal 2024 was our best year for aircraft trading and net income since 2019. I'm pleased to share that Aircastle finished 2024 with net income of $124 million, bolstered by improved lease rental and finance lease revenues, as well as opportunistic gains on sales. Throughout the year, our fleet utilization was over 99%, and our full-year operating cash flows finished 25% above the prior year. As I share this good news, I want to thank all members of Aircastle's global team for their outstanding efforts, especially in the fourth quarter when we acquired 29 aircraft, bringing our full-year count to 50 aircraft acquisitions, all narrowbodies. Of the $1 billion of aircraft we added in the fourth quarter, almost 70% of the net book value was in new technology, primarily A321neos and 737 MAXes.

At the end of fiscal 2024, new technology narrowbody aircraft comprised 45% of our fleet, well above the global average. We finished the year successfully completing $1.6 billion in new investments, all while connecting with new trading partners and reaffirming our relationship with past partners. Fiscal 2024 was also a successful year in strengthening our capital structure. We raised $1 billion in new financing from senior unsecured notes, and we received $300 million of new equity from our shareholders, Marubeni Corporation and Mizuho Leasing. This being the final tranche of a $500 million commitment made during the beginning of fiscal 2023. Lastly, in the fourth quarter, we received Russia-related settlement proceeds of nearly $50 million. All in all, a great year due to our team's collective efforts and the outstanding support we received from our shareholders.

Now I'd like to share my thoughts on the aviation market and the general macroeconomic environment. For the past year, our quarterly updates highlighted consistent growth in aviation, and we've described how conditions were especially favorable for lessors. Like everyone, we're now proceeding with caution as we look at the outlook for 2025 and beyond. Aviation has long proven to be a bellwether for consumer sentiment. Right now, airlines are extra vigilant over the potential for enduring or increasing inflation exacerbated by this month's tariff announcements. In addition, we're seeing economists from our banking partners elevate their recession risk outlooks for 2025 and beyond. I had started the year expecting 2025 to be a favorable growth year, albeit at a slower pace compared to 2024.

The global economy has become more volatile due to the tariff announcements, and airlines are now bracing for how consumers will react as they start to feel the implications to their disposable income. Airlines are suggesting they'll be more cautious about capacity planning for this year. Manufacturing and maintaining aircraft are complex businesses. The growth and success of aviation depends on deeply interconnected supply chains that cross many borders. For quite some time, we've been speaking about new aircraft supply constraints, new engine maintenance issues, and MRO shortages. Layering tariffs into these challenges will likely extend these constraints further into the future. Earlier this month, IATA released their air passenger market analysis for February 2025, and we've already seen a slight decrease in RPKs versus 2024 for North America.

As 2025 moves forward, airlines and lessors will be keen to see how traffic numbers react, especially for domestic North American and transatlantic routes. Just as we too will be vigilant, we're also being mindful of opportunities. As tariffs disrupt supply chains and further delay the deliveries of new aircraft, it's reasonable to expect an extension of the strong demand we saw in 2024 for our fleet of narrowbody current technology aircraft. Despite economic disruptions, history has shown that air travel demand has grown steadily over the long term. There are many questions as to what the trade war and tariffs might bring for the foreseeable future, and it's difficult to speculate on what immediate action can be taken other than vigilance. What I can tell you is this: in Aircastle's 20-year history, our sound investment approach, our solid balance sheet have served us well during less favorable times.

We have ample liquidity to both endure disruptions and seize unique investment opportunities that might present themselves in the near term. I'll now pass the call over to Roy, who'll go through our fourth quarter and full-year results in more detail.

Roy Chandran (CFO)

Thanks, Mike. For fourth quarter, we earned net income of $61 million on total revenues of $206 million. We purchased 29 aircraft and sold 7 aircraft in the fourth quarter, adding a net book value of $1 billion and bringing in sales proceeds of $92 million, with $20 million in gains. For fiscal year 2024, we earned net income of $124 million, up $40 million, or 48% versus 2023. In addition, rental and finance lease revenue improved 9%, and cash flow from our offices up 25%. Our fiscal 2024 adjusted EBITDA was $790 million, up 4% versus 2023. For six consecutive quarters, our fleet utilization remained above 99%. We sold 27 aircraft during fiscal 2024, with an average age of 16 years. Mike mentioned we received $50 million in Russia-related settlement proceeds from certain insurers under our contingent and possessed insurance policies. These were recorded in other income.

It's important to note that the $43 million in settlement proceeds received directly from two Russian airlines in the fourth quarter of 2023 were recorded in gains of sale or disposition. Turning to financing in the capital markets, during the fourth quarter, we issued $500 million in senior unsecured notes at 5.25%. Investors and rating agencies clearly see value and optimism in our disciplined investment approach and the outstanding support from our shareholders. This issuance had a spread of 108 basis points over treasuries, which represents the tightest spread for any unsecured Aircastle issuance to date. With this issuance and the maturity of some of our unsecured loans, our $7.9 billion fleet is now 90% unencumbered. At the end of the fourth quarter, total debt was $5 billion, of which 90% was unsecured. The weighted average interest rate on our debt at the end of the fourth quarter was 5.1%.

We finished the year with adjusted net debt to equity of 2.1 times. As of April 1, we had total liquidity of $2.7 billion, composed of $2.1 billion of undrawn facilities, unrestricted cash of $100 million, and $500 million in projected 12-month adjusted operating cash flows and contracted sales. Moving forward into 2025, we're looking forward to build upon the positive outlook designations we received from Moody's and S&P. We believe we make a very compelling case for a ratings upgrade, given our improved profitability, our solid credit metrics, and along with the support we received from our shareholders, Marubeni Corporation and Mizuho Leasing. With that, operator, we are happy to open the call up to questions.

Operator (participant)

Thank you. If you would like to ask a question, please signal by pressing Star 1 on your telephone keypad. If you're 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 a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Our first question is from Doug Runte from Deutsche Bank. Your line is now open.

Douglas Runte (Managing Director)

Yes, good morning, and thanks, Mike, for the thoughtful comments on the market environment. I'm wondering if you could give a little bit more color on perhaps the conversations that you've been having with airlines. Over the last, call it, 24 months, we've been hearing from lessors that lease renewals and extensions have been a very high percentage of conversations as leases start to roll off. I guess, have you seen a shift in recent months with your conversations with airlines, with fewer airlines looking to renew or perhaps pushing back on lease rates for extensions that you thought might have been possible two or three months ago?

Michael Inglese (CEO)

Hey, Doug, thanks. I'd say at this point, we haven't seen any change specifically in behavior, but that may also be due to the fact that we have had most of our stuff put away for this year. As we're looking into next year at our what's now scheduled roll-off, I think we're thinking it's going to be a mix of older aircraft getting parted out, some of our newer tech aircraft, which we'll be transitioning out of existing operators to new operators, given the existing lessees order book deliveries and some extensions as well. In recent months or so, two months, there's not been a dramatic change in conversations or, from our perspective, expected disposition of the aircraft that are scheduled to roll off over the next 18 months or so.

Douglas Runte (Managing Director)

Great. That's very helpful. Then a follow-up question. On your aircraft sales, I'm wondering if you can talk a little bit about, I guess, your strategy and what drives the decision on the volume of sales that have occurred. It seems we still have a very strong market for physical assets. Presumably, a high percentage of your fleet, with leases attached, is in the money relative to book value. I guess, why not more aircraft sales to take advantage of that strong market and reduce the average fleet age and maybe get ready for possibly the aftereffects of Boeing finally starting to ramp up?

Michael Inglese (CEO)

Look, we've been selling at higher volumes than we had historically over the last couple of years, and I expect that will probably continue into this year as we're moving forward. It is really kind of for us looking at a way to overall refresh the fleet, try to enhance the return profile of the assets that we're acquiring and will own, and move out of some of the lower profit-contributing assets as part of the sales strategy and fleet renewal as we move forward.

Douglas Runte (Managing Director)

Great. Maybe a quick last one, perhaps for Roy. It looks like maintenance revenue was down in the quarter pretty significantly and also year to date. Is that a good thing because you have fewer maintenance payers because of the quality of your lessees? I guess more broadly, should I be thinking of maintenance revenue as a profit center as some lessors have seen it, or more of a neutral because it simply makes up for maintenance burn?

Roy Chandran (CFO)

I think the first part of your question, I think there's a pretty simple answer to that. One, firstly, there's less sort of transitions and more extensions, so that in effect translates to lower maintenance revenue being booked. I think relative to last year, last year, in our maintenance revenue, there was a little bit of noise on some finance lease conversions. If you net out those effects from last year just on a run rate basis, there wasn't a significant difference. The main step down would be any increase in extensions, increase or decrease in extensions, right? To your second question, I think we historically have treated maintenance as sort of nice to have, and it's sort of as long as you can wash your face with it, we don't necessarily see it as a profit center.

If you look year to date over our history, sure, I think that net maintenance does add to the bottom line.

Douglas Runte (Managing Director)

Great. Thank you very much for all of the answers to the multiple questions.

Michael Inglese (CEO)

Thanks, Doug.

Operator (participant)

Thank you. Your next question is from Tyler Schachner from JPMorgan. Your line is now open.

Tyler Schachner (Credit Research Associate)

Hey, just one from us. This morning, on tariffs, do you think they could potentially stimulate or suppress further consolidation in the industry, or does it not really matter?

Michael Inglese (CEO)

It's not clear to me that tariffs will have a big impact on the evolution of the aircraft lessor space over the next three to five years. I think it's going to follow the path that I think it would have followed before. It may create some uncertainty in the near term as everyone's trying to figure out where exactly this is all going and how it shakes out. I don't think in and of itself it's going to be a driver of more or less consolidation per se.

Operator (participant)

Thank you. Your next question is from Jim Barr from BowFlex Inc. Your line is now open.

Jim Barr (CEO and Board Director)

Oh, hi. Thank you very much for taking my question. I guess I was thinking along the lines of Doug's question. He was asking about sort of the leasing market and if you've seen anything changed. I'm wondering if you've seen any changes in kind of the acquisition market at all and maybe what your view is on that going forward.

Michael Inglese (CEO)

Again, it's kind of a big near-term issue, and we haven't seen any particular change in behavior of what's available in the market from a buying perspective or what people are bringing to the market and what we're thinking about bringing to the market in the construct of continuing the portfolio management aspect and the trading aspect of our business. I don't think it's going to dramatically change. Now, if tariffs wind up at some giant percentage and planes suddenly cost a lot more money, that could have an impact on how people are thinking about returns in the business more broadly and how that will shake out. Ultimately, who's going to pay the price? Because clearly, airlines in the past three or four weeks have been saying they don't think they're paying for it. Other lessors are saying, "Who I have order books.

It's not in my contract. I'm not paying for it." The obvious question is, well, who's going to pay for it? And what will that ultimately do to travel demand?

Jim Barr (CEO and Board Director)

I guess given that uncertainty, have you seen kind of the acquisition market slow down a little bit given that? You've had some nice portfolio growth last year. Would you expect that kind of same level of portfolio growth this year as well?

Michael Inglese (CEO)

Look, I think where we are today in the early part of this fiscal year, we've got a decent pipeline of investment opportunities. Whether it turns out to be at the same level as last year, it's a little early to tell. Again, the phenomenon here is so recent, it's hard to say what the impact is and how people are really thinking about the trading market and how that'll progress over the next three months.

Jim Barr (CEO and Board Director)

Very good. Thank you very much, Mike. Appreciate it.

Michael Inglese (CEO)

Thanks, Jim.

Operator (participant)

Thank you. As a reminder to ask a question, kindly press Star 1.

Michael Inglese (CEO)

If we could just have one quick follow-up point from Roy.

Roy Chandran (CFO)

Yeah, I just wanted to clarify a question from Doug. My commentary around the finance lease classification was in relation to gains, so I want to correct that statement.

Michael Inglese (CEO)

Thanks, Roy.

Operator (participant)

Thank you. It appears that there are no additional questions at this time. I will now turn the conference call back to James Connelly for any additional remarks.

James Connelly (SVP of Corporate Communications)

Just want to thank everyone for joining us today, and please reach out if you have any questions, and hope you have a great day.

Michael Inglese (CEO)

Thanks, everyone.

Operator (participant)

Thank you, ladies and gentlemen. That concludes our conference call for today. Thank you all for participating. You may now disconnect your line.