AerCap Holdings NV Aktie

Good day, and welcome to AerCap Holdings N.V. Q1 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 would like to turn the conference over to Brian Canniffe, Group Treasurer. Please go ahead, sir.

Thank you, operator, and hello, everyone. Welcome to our first quarter 2026 conference call. With me today is our Chief Executive Officer, Aengus Kelly; and our Chief Financial Officer, Pete Juhas.

Before we begin today's call, I would like to remind you that some statements made during this conference call, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. AerCap undertakes no obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call.

Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated April 29, 2026. A copy of the earnings release and conference call presentation are available on our website at aercap.com.

This call is open to the public and is being webcast simultaneously at aercap.com and will be archived for replay. We will shortly run through our earnings presentation and we'll allow time at the end for Q&A. [Operator Instructions]

I will now turn the call over to Aengus Kelly.

Thank you for joining us for our first quarter 2026 earnings call. I'll begin today with an overview of performance for the quarter before turning to discuss the market environment in light of current geopolitical events. I'll then touch on our outlook and strategic priorities for the remainder of the year before handing the call over to Pete to review the financials in more detail.

Starting with performance. I am pleased to report that this was another record quarter of earnings for AerCap. The company generated GAAP net income of $818 million or $4.96 per share, and record adjusted net income of $889 million or $5.39 per share. This represents an 18% GAAP return on equity or 19% adjusted return on equity for the quarter.

Despite the macro backdrop, we continue to see robust demand for aviation assets, supported by persistent supply challenges and sustained consumer demand for air travel. The first quarter serves as a clear reminder and reinforcement of the long-term and durable nature of this business.

Our multiyear fleet planning discussions with customers continued during the quarter, resulting in an 87% lease extension rate and the closing of 286 transactions. This included the signing of 202 lease agreements and the sale of 41 owned assets, generating sales revenue of $1.5 billion. Importantly, 57% of the lease agreements were signed in March, suggesting little change in airline behavior despite the geopolitical uncertainties.

Given our strong results in the first quarter, including the repurchase of $745 million of our outstanding shares, we are increasing our full year adjusted EPS guidance to $14.50 per share, not including any additional gains on sale. I am also pleased to announce today the authorization of a new $1 billion share repurchase program.

Now turning to the broader market environment. We continue to see strong demand for our assets despite recent geopolitical events. That being said, if jet fuel prices persist at current levels for the next 3 to 6 months, it will place pressure on the airline industry. The extent of the impact on individual airlines will vary depending on factors such as region, business model, balance sheet strength and fuel hedging practices. To date, the industry has been able to pass on a significant portion of higher fuel bills to consumers.

Looking beyond 6 months, elevated fuel costs will pressure airline profitability and place greater emphasis on airlines' balance sheet resilience and financial flexibility. Over time this could contribute to an acceleration in the retirement of older technology aircraft. So this is not a dynamic we are seeing play out just yet.

As we know, airline fleet planning decisions span multiyear horizon, and carriers typically do not make long-term fleet decisions in response to a few months of market volatility. In the scenario in which fuel costs remain elevated beyond 6 months, we would expect to see additional growth opportunities emerge for AerCap. In particular, it is likely that we'd see increased sale-leaseback opportunities as airlines look to fund growth while preserving cash and prioritizing liquidity.

For context, the global order book remains heavily skewed to airlines with just 4 airlines having a combined order book larger than that of the entire lessor community. In both the near and longer-term scenarios, AerCap is well positioned to support our customers while continuing to maintain a disciplined approach to capital deployment, execution and risk management.

Against this backdrop, we entered the second quarter with a below-target leverage ratio of 2.1x net debt to equity, $21 billion of liquidity and more than $3 billion of excess capital. This positions us well to execute our strategy, balancing organic growth and share repurchases while maintaining flexibility for future opportunistic investments.

Our continued investment in new technology assets, including the 110 aircraft added to our backlog in the first quarter, reflects our disciplined approach to capital allocation. We are targeting assets with strong demand fundamentals and attractive long-term economics, consistent with our positive outlook for the aviation sector.

With respect to our 100 aircraft order in March, our infrastructure, industrial capability and scale enabled us to execute this very complex transaction with speed while supporting key business partners in the process. By leveraging our leadership in the engine leasing space, we were able to agree attractive terms, including a delivery stream that starts in 2028. This order not only underscores our unique market positioning, but it enhances the quality of our portfolio, aligns with our constructive outlook on the sector and ultimately supports long-term value creation.

In closing, this was another strong quarter for AerCap, reflecting the durability of our business model, the quality of our asset portfolio and the disciplined execution of our strategy. Despite a mixed operating environment for our customers, underlying demand for aviation assets remains strong.

We enter this period from a position of strength, supported by robust earnings, low leverage, high liquidity. We'll remain focused on prudent capital allocation, supporting our customers where appropriate and investing in assets that we believe will continue delivering attractive long-term value for our shareholders.

With that, I'll now hand the call over to Pete to review the financials in more detail.

Thanks, Gus. Good morning, everyone. Our GAAP net income for the first quarter was $818 million or $4.96 per share.

The impact of purchase accounting adjustments was $84 million for the quarter or $0.51 per share. That includes lease premium amortization of $26 million, maintenance rights amortization of $37 million related to maintenance revenue and maintenance rights amortization of $21 million related to leasing expenses. The net tax effect of these purchase accounting adjustments was $13 million or $0.08 per share.

As a result, our adjusted net income for the first quarter was a record $889 million or $5.39 per share. And that represents an adjusted ROE of 19.4%, also a record.

I'll briefly go through the main drivers that affected our results. Basic lease rents were $1.682 billion, slightly lower compared to last quarter, and that's primarily due to aircraft sales as well as downtime on aircraft that we took back from Spirit Airlines.

Maintenance revenues remained elevated this quarter at $190 million. Our net maintenance contribution, which is maintenance revenue less leasing expenses, after taking into account purchase accounting adjustments, was $138 million this quarter. That's higher than usual due to the timing of maintenance revenue, transition expenses and claims. We expect net maintenance contribution to remain elevated through the first half of this year before trending back towards more normal levels in the second half.

Net gain on sale of assets was $291 million for the quarter. The sales environment continued to be strong and we sold 41 of our owned assets for total sales revenue of $1.5 billion. That resulted in an unlevered gain on sale margin of 24% for the quarter, which is equivalent to a multiple of 1.9x book value. As of March 31, we had $899 million worth of assets held for sale.

Interest expense was $467 million for the first quarter. Leasing expenses were $110 million, which is a significant decrease from the fourth quarter when we recognized the majority of the restructuring costs related to the Spirit Airlines bankruptcy. Our income tax expense for the first quarter was $139 million, reflecting an effective tax rate of 15.5%.

Turning to liquidity. Our liquidity position continues to be very strong. As of March 31, our total sources of liquidity were approximately $21 billion. That includes just under $1.5 billion of cash and $10 billion of revolvers and other committed facilities, as well as estimated sales and operating cash flow.

Our sources-to-uses coverage ratio was 2x, which reflects excess cash coverage of around $10 billion. Our leverage ratio at the end of the quarter was 2.1:1, the same as last quarter. And our operating cash flow was $1.4 billion for the quarter.

Our secured debt to total assets ratio was 9%, which is an all-time low and a decrease from 10% last quarter. Our average cost of debt was 4.1%, the same as last quarter.

And in terms of share repurchases, during the first quarter, we bought back 5.4 million shares for a total of $745 million. And today, we've announced a new $1 billion share repurchase program.

Given the strong performance in the first quarter, we're raising our full year 2026 adjusted EPS guidance to approximately $14.50. We're increasing our estimate of EPS, excluding gains on sale, to approximately $13, which is the top end of our previous range. And we're also including the $1.50 of gains on sale from the first quarter. However, we have not included any gains on sale for the remainder of the year.

As it relates to asset sales, our initial guidance for asset sales this year was between $2 billion and $3 billion. Given the large sales volume in the first quarter and the significant held-for-sale balance at the end of March, at this point, we expect that sales will be over $3 billion for the full year 2026. And I expect those sales to be weighted towards the first half of this year.

In closing, despite recent geopolitical events and ongoing macroeconomic challenges, AerCap has continued to perform very strongly. During the first quarter, we generated record adjusted EPS of $5.39 and record adjusted ROE of over 19%.

The addition of 110 Airbus A320neo aircraft to our order book this quarter at attractive terms and a delivery stream starting in 2028 illustrates AerCap's ability to use the power of our platform, including our leadership in engine leasing, to invest in the growth of our business. Our recent Airbus order together with the new share repurchase program we announced today as well as our increase in full year guidance all indicate our confidence in the value of AerCap today and into the future.

And with that, operator, we can open up the call for Q&A.

[Operator Instructions] We'll go first to Ron Epstein with Bank of America.

Gus, thanks for the commentary around the current environment out there. When you think about potentially the duration of what's going on in the Middle East, when would you expect it, or not, to start impacting residual values of older planes? And when you guys think about that, how should we think about that?

Ron, well, it's important to look at what's actually happening on the ground in terms of flights. So the average daily number of flights in April of 2025 was 102,833. In April 2026, the average number of flights is 102,131. So Ron, I give that number because the amount of daily flights, the reduction year-on-year for the same period is 0.068 of 1% (sic) [ 0.68 of 1% ].

So, so far, we have seen a de minimis impact. It's not to say we won't see more of an impact over the rest of the year if fuel remains elevated. But to date, the number of flights that were down is a de minimis amount.

Now it takes airlines years to adjust a fleet plan. And any aircraft we have on lease are on lease for a long period of time. So I would say it would be quite a significant period of time before we were to see older-technology aircraft being replaced or exiting a fleet. An airline cannot just exit the aircraft type. As it pertains to AerCap at any rate, we have the greatest concentration of new technology aircraft in the world of any major airline or leasing company at over 80%. So it will take some time, Ron.

Got it. And then maybe one follow-on. Just kind of thinking out loud here, if I were an airline and I wanted to protect my balance sheet, but I still wanted to bring on new airplanes, why wouldn't I just go to you? And I mean, I'm not trying to throw you a softball here, but it would seem like in the current environment, that leasing an airplane might be a more attractive option to an airline that might not have wanted to do that before. So maybe in sort of a weird way, could this be a stimulus for you guys? Or am I just thinking about that wrong?

No. It certainly -- I mean, look, there's no doubt that if higher fuel prices continue, you will see a reduced financial flexibility that the airlines have. And bear in mind, as I said in my prepared comments, the OEMs are over-indexed to airlines, the weaker credits, of their customer base. And 4 airlines alone make up more than the entire order book of the leasing industry. So I would imagine that if this were to continue, there will be opportunity in sale leasebacks as you referenced there, Ron.

Our next question comes from Jamie Baker with JPMorgan.

So Gus, kind of building on that, specific to used aircraft sales that -- transactions that you're already working on in the pipeline, since the start of the war, have any aircraft sales fallen through or settled at lower-than-hoped-for economics? Given that presumably some portion of your customer base is happy to take a pause on growth, and of course, fuel efficiency has probably never been more important than today.

Well, fuel efficiency is definitely important, you're absolutely right, Jamie. But why I highlighted in my prepared comments that 57% of our transactions closed in March when the war had started, we have not seen anyone pull out of a sale yet or try to renegotiate one. While you're right, fuel is important, there still is a tremendous demand for CFM products, in particular, because of the scarcity of those engines in the market.

So as of yet, we haven't seen anybody pull back. And I ask that question every day here at the trading team, and there's no sign of it.

Excellent. And then specific to the Middle Eastern airlines, at what duration of elevated fuel do we need to start questioning whether twin-aisle demand specifically will continue to exceed supply? I know you spoke to what the world might look like after 6 months sort of in general, but my question is more specific to the Middle East and the demand for widebodies.

That's a fair point, Jamie. And when I referenced the daily number of reduction in flights, of course, they're heavily concentrated in the Middle East on widebodies.

Now there are winners in this too. I'll give you an example. We had 2 A350s coming back from a customer in China. Those aircraft, I was with the CEO of a major European carrier at the end of March when the war was in full swing, and he just said to me, "Just tell the team, call them, tell them we're taking them, no debate. We want them as fast as possible."

I give that as an anecdote because there are winners here too. For the last 15 years, major European and other Asian carriers have obviously had a very difficult time with the Gulf carriers. Now is their chance, those carriers that can fly around the Gulf and connect Europe to the Far East, they are doing well now. They are all looking for lift.

We thought we had another package of widebodies that we could take out of a customer 3 weeks ago. Within a week, we had quite a number of bids lined up. The customer actually then decided to hold on to the widebody aircraft.

There's no doubt, though, that over a period of time for the Middle Eastern carriers -- but I would never write off the Middle Eastern carriers, they will be back, of course. I think it would have to take a very significant period of time before the airlines that are owned by the State of Qatar, Abu Dhabi and Kuwait and Dubai would let orders go. I do think, to be fair though, what you might see is a greater reliance on the leasing industry to finance those aircraft if and when they come. But I would not see them being canceled.

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

Great. I was just wondering if you could kind of talk a little bit, given that your capital levels have been stable despite all of the buyback, how do you think about deployment of that and what opportunities are out there? I mean in the deck, you mentioned kind of $5 billion of expected CapEx. But are there ways to kind of enhance that? And how else should we think about that in the balance of '26?

Well, as you've seen year after year after year, we find accretive opportunities that are additive to shareholder value. And I would back AerCap to do the same again this year.

As you've seen, due to the unique capabilities the business has, we were able to solve the issues for our business partners in CFM and for an airline partner in Frontier, be able to take aircraft and engines out of Frontier, put them into our engine leasing pool. And as part of that, because we did that, that freed up capacity in the Airbus production line, and we were able to exercise options and get slots that no one else in the world could get access to, as I referenced, that they start in 2028.

I would imagine that as the year goes on, we will find other opportunities, either because of the unique [ capabilities ] I just outlined or due to, if we do see more pressure on airline balance sheet, I think we'll see some opportunities. But every year after year, we've managed to find asset growth opportunities.

And then, of course, look, we also believe that the cheapest aircraft in the world, as I said before, are available on the New York Stock Exchange under the ticker AER. And we are leaning into that as well. And certainly, at any time of weakness in the stock price, we will lean into that.

Great. And just as a quick follow-up, I apologize, I've been bouncing between calls this morning, did you give any update on the kind of the maintenance and return to service on the Spirit aircraft?

We didn't specifically give any update on that. I mean. As I mentioned before, we're looking at kind of latter part of this year where the first of those may come back into service. So they're going into the shop as planned. And then we'll look to see some revenue coming off those late this year.

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

Gus, a follow-up on your answer to Moshe on AerCap's track record of sourcing unique growth opportunities over the last couple of years. Could you just -- I mean, I know you're not going to give us exact numbers, but could you provide some color on how the acquisition costs or projected returns on these transactions compare to what you would have seen by placing a direct OEM order or acquiring assets via sale-leaseback RFP?

Well, of course. Look, we don't mind how we spend our money as long as we make money. And we make money, we make it at a level that's comparable to the alternatives we have in the business, for example, buying back stock, et cetera.

But look, what I would say, Catherine, is I'd have to work hard. I mean I can be lazy and just roll up to an OEM at the airshows and place an order that starts delivering in 2032 and finishes in 2038 and get crushed on escalation and take massive placement risk for an environment I've no idea about.

But leaving that alternative to the side for AerCap, which we won't do, we work very hard, and the infrastructure and scale that we have has enabled us to continually generate opportunities. And you've seen not just that. You've seen the results of those opportunities in the P&L today and in previous quarters, and you'll see it in quarters to come.

That's great. And then I know last quarter you said you were investigating aeroderivatives for data center power generation. If you've got any updated thoughts, that would be great to hear too. But we're really wondering if you're already seeing elevated demand for your aircraft or engines from those already pursuing converting engines for this use?

The discussions have continued. And those discussions are with data center builders. And there's 2 components for the guys who build data centers. There's the actual shed itself, as they say. And then there's the interior, the complex engineering behind the interior build of the generator. We've spoken to the OEMs and we've spoken to others who will be involved in the converting of an engine into a mobile gas-powered unit.

Now we've also spoken to end users. And in the end users, there's different stripes. There's guys who are property developers, that build data centers and then try and lease out the space. And then of course, there's a much stronger credit quality, which would be very large corporate entities, such as hyperscalers and others.

What is clear is that there is significant demand today and probably in the near term. At the moment, it's less clear where the demand is in the long term. It may well be very strong. The sales cycle appears to be long as well.

That being said, it's something we are continuing to investigate and also to get a full handle on the cost and the R&D. That's going on with the 2 companies who could actually convert the engines for us. But we have to get firm costs and an idea of true long-term demand.

And then the final point, of course, if there are other entities out there, and there are 2, that are looking to buy commercial aerospace engines and put them into aeroderivatives, if that does become a significant market, then of course, we will participate indirectly in that way. But as yet, we don't see that.

We'll go next to Terry Ma with Barclays.

Maybe just starting with the CFM engine deal. Can you maybe just talk about the lease rates or the returns on those engines compared to what they were kind of generating when they were on the original aircraft?

Sure, Terry. The lease rates on those are basically the same. We're basically getting the same amount as we were on the aircraft as a whole.

Great. Okay. And then if we were to think about the net spread margin going forward and just kind of like the moving pieces, it doesn't sound like there's much downtime on the engines. But then you have Spirit aircraft coming online and you do have a large bond maturing. Like what's the kind of trajectory or cadence of the net spread margin?

Sure. So as I mentioned, a couple of quarters ago, we expected to have the net spread be pretty consistent over the next few quarters. So it was 8% this quarter, same as third quarter, same as fourth quarter. I think that will probably continue for another couple of quarters.

And then later in the year, we should see some expansion, as I mentioned. Some of that is going to be driven by some of those assets that are currently on the ground coming back online. We'll have some more freighters delivering late in the year, so that's part of it as well. So I'd look for some uplift in the second half of the year.

Got it. That's helpful. And then if we were to look at ROE, you guys kind of generated an impressive 19% adjusted ROE this quarter, at a time when the business is well under your leverage ratio. Is there kind of like a way to think about normalized ROE through the cycle once you kind of normalize that leverage?

Yes. Well, if we look at the long term, like, say, from 2007 to now, on average, we have generated ROEs of about 950 basis points above the 5-year treasury. So that's how we've looked at it over the long term.

If you look at the last few years, so each year we've been between 14% and 15% roughly for the last few years. And this quarter obviously was quite high with the 19.5%. That was driven by -- somewhat by the higher maintenance contribution, by the higher gains on sale and those type of things. But nonetheless, we would expect to continue running at very high levels.

Now as you note, correctly, we're at low leverage now. I think over time, we're going to normalize that. It's going to go back to 2.5x, something like that. And that should be a positive for ROE, right, as we deploy more of that capital.

I think, Terry, the key point for me, as I've always said to you, is that this business generates extremely stable returns, and does through thick and thin. As Pete said, we're going back 18 years in those numbers.

And these are GAAP numbers. They're not adjusted. In the short term, sure, you can adjust numbers. But in the long run, it has to be GAAP. And the GAAP ROE of this business, as Pete said, is 9.5% above the 5-year treasury for that period, for 19-odd years.

There's very few of any companies in our industry, be it industrial or otherwise, that could match those ROEs. And when we look forward, as I said, I've always said, that the business through thick and thin should be in and around 8% to 10% above the risk-free rate, the 5-year treasury.

We'll take our next question from Kristine Liwag with Morgan Stanley.

The Airbus A320neo family orders that you were able to get, I was surprised that there were available slots in 2028. I was wondering if you could talk more about the terms and how this opportunity came about. I thought that the aircraft was more sold out beyond 2028. And then also that the -- you mentioned in your prepared remarks that it was in fairly attractive terms. Any details that you could provide would be appreciated.

Sure, Kristine. And you are right, I think if you walked up to Toulouse for the airshow and ask for an order, they'd probably start in 2033, 2032.

Now why was AerCap different, and why is it consistently different? Well, it's to do with what we can do for key suppliers and key business partners. In this instance, because we're the largest engine leasing business in the world, we knew there was a shortage of engines in the global business, globally for all, shortage of CFM LEAP engines.

We knew that a key business partner of ours, Frontier, would like to reduce capacity. We had the infrastructure, and it's very important to be able to move rapidly. Given enough time, others might be able to do it over a couple of years. We were able to get the engines out of Frontier within a matter of months, start -- within a matter of weeks, start redelivering those engines, getting them into our lease pool and getting them out there to support the in-service fleet of Airbus Neo equipment.

This meant that there was less pressure on the production line to divert engines to the spare engine pool and more slots would be available then to produce new aircraft. So we're helping the airframer, the engine OEM and our airline customer. No other leasing company in the world can do that.

That enabled those slots to free up, and we had options that we could exercise with Airbus and we exercised them. And that's why our 100-plus aircraft, the vast majority of them, will have delivered by the time I'd say any other leasing company could begin an order stream.

Great. Super helpful context. And Gus, maybe this is more of an opportunistic question, but with the breadth of your portfolio, the quality of your balance sheet, it seems like you're really poised to take advantage financially of some of these incrementally distressed situations.

So if oil prices were to extend beyond the 6 months in an elevated way, can you talk about if you do start seeing distressed airlines there, is there a way for you to size incremental opportunities or things that you could do to increase your return? Because you seem to be in a position to do that. You've consistently done it. And any sort of color you could provide there and how you're poised for that, again, would be appreciated.

Yes, Kristine. We are, of course, at the lowest leverage we've been at with a very large balance sheet, with $21 billion of liquidity. That all being said, I certainly don't wish for the current situation to drag on any longer than is humanly possible. We certainly would not like to see it drag on for the rest of the year, and hopefully, it won't.

No doubt, if that was the case, there would be pressure on some airlines. But would that just be a few airlines in difficulty? Probably. And would we be able to cope with that? Yes.

But to the other side, I suspect there would be opportunity. Because as I mentioned earlier on, the OEM order books are heavily overweight the airline industry. Four airlines alone have a greater order book than the entire leasing industry. So to me, the OEM order book is over-indexed to the weaker credit of the airline industry on average than to the stronger credit of the lessor. So I would imagine if we do continue to see these levels of elevated fuel prices, that there may well be opportunities.

Our next question comes from Arren Cyganovich with Truist Securities.

This balance of a net negative for airlines of higher oil prices potentially for an extended period of time being a net positive for you, I totally understand it. But it also seems a little, I don't know, backwards. Maybe talk a little bit about how lease rates would trend in those kind of scenarios. I'm assuming the gain on sales would probably come down quite a bit. What are some of the negative impacts that you would see that would balance out some of those positives?

Yes, you're right. And that's why I certainly wouldn't want this to -- I want this current fuel issue to resolve itself as fast as possible. And you're right, in an example where there is significant stress on airlines over a period of time, of course, what you're going to see is reduced level of flying. But that will primarily affect older technology assets, of which, as I mentioned earlier on, AerCap has less than 20% in our portfolio, and most of them are on lease to fairly strong credit. So they could get retired over time.

But you're right that it would be more -- if we were selling those assets, of course, the gain on sale will be lower and there may well be a limited bid for it in time. That being said, those things can't happen overnight. As it relates to leasing rates, yes, of course, if there is a reduction -- a significant reduction in flying, there will be some impact on lease rates.

But I want to go back to what we said about the ROE of this business. We're going back to 2007 and the stability of the returns of this business have been proven through thick and thin. And I would also say that we have found those opportunities that are accretive in the long term as well when we do have periods of difficulty.

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

First and foremost, have any of your airline customers reached out seeking concessions of any form given the cost pressure from higher fuel?

As yet, we haven't agreed to anything material with the airlines. I'm sure that if this continues over the course of the next 6 months, we'll have guys coming in and asking us for some assistance. But to me, I would think that would be very much on a case-by-case basis as we have in the past.

But I want to go back to what I said at the start of the prepared comments just to give you an overview of the entire industry. At the moment, the number of flights is down less than 1%. That could creep up, of course, I'm not saying it wouldn't. There will be pressure on airline balance sheet over a period of time.

But right now, fuel represents generally 30% of an airline's cost base. Airlines, for the most part, are able to pass on a significant percentage of that, between 40% and 50% of it, a lot of them are being able to pass on in terms of cost -- in terms of fare increases. And then of course, there's other steps airlines will take, which will be to reduce flying, voluntary leave for staff, pilots, for flight crew, et cetera. And so they will be able to mitigate a fair amount of this themselves.

It will have a significant impact on airline profitability. But from our standpoint, very key again, why are we so stable? Our profits are the same whether or not an airline makes $1 billion or breaks even. And that's a very different analysis, of course, for the airline. But I would think like everything we see with this industry, this too will pass.

Great. Maybe for my second, Gus, can you break down any changes in demand that you're seeing for new versus old technology aircraft? And what is the historical lag in change in demand to the impact on market values and lease rates?

Look, as yet, it's far too early to say an impact on market value and lease rates. Every transaction that we have had in the hopper, airlines are still pushing forward. There's one transaction where there's a change in management of the airline, and that's being put on pause. That was a handshake that happened, but that wasn't to do with the fuel crisis, I would say.

So overall, as yet, we haven't seen it. But there's no doubt that I think if this were to last through the end of the year, the 6 months I referenced, and maybe a little bit before that, that you would see a reduction in the bid potentially for older technology assets. But that's not a part of the market that we're particularly exposed to.

Many of you over the different investor presentations we've shown will have seen how we look at our sunset approach to the portfolio, to get out of those older tech assets. And as I said, those older tech assets that we have, most of them are on long-term leases as well. So they couldn't be returned anytime soon. But you're right, I suppose, in terms of if you're looking at gains on sale for those assets, that may well be a bit different. But it's not a huge part of our portfolio.

We'll go next to Chris Stathoulopoulos with SIG.

So I have one question. Gus, I'm going to frame it, just want to hear your thoughts on how you're thinking about, I guess, risk management here in a scenario where the business as a whole, managing the portfolio, et cetera, but in a scenario where fuel is higher for longer, perhaps we see as some of the airlines are pointing to demand elasticity or destruction and then some inflationary pressures on the consumer and consumer staples. I thought it was interesting how you mentioned around older technology retiring in a higher for longer fuel scenario.

So maybe you could talk about that within what is unique to AerCap, this barbell approach. But then holistically, portfolio risk, asset values and lease rates. I think it's important here as we consider potential outcomes if fuel is 3, 6 months or 12 months higher and this does then start to metastasize, if you will, into the broader economy. What is AerCap's approach to managing the portfolio with this older and new? And how are you thinking around things like asset values and lease rates?

Sure. Well, like any challenge, you don't think about it when the challenge arrives. You have to be thinking about it for 10 years before. And you rightly referenced our barbell approach to the portfolio. And those of you who have seen those slides, and we show them time and again, is that from 2012 onwards, we took the view that we want to invest in new technology assets or older versions of older technology if there was something of great value.

But generally, only buy new tech assets. And that meant avoiding orders for 737s, A320s, A330s and 777s. Because ultimately, those aircraft will be replaced by the newer technology. And if you were to buy a 25-year asset in 2014 or 2015, it needs to be in service until 2039 or 2040. And so our view was let's just make sure we're out of those assets. And particularly, we never ever buy any young variants of those assets. And that's what we've been saying for many years on these calls, that the key is to always own assets that the remaining economic life can be consumed.

So I have no concern about owning a 777 today that's 20 years of age. For sure, they will be in demand for the next 5 years. I certainly wouldn't want to own one that's 10 or 11 years old because I doubt it will be in demand for 15 years of age. But it was tempting 10 years ago to buy those assets, and many did.

So from AerCap's perspective, as I said, the way to look at our company and the portfolio risk is to say, well, show us the percentage that is old and new tech. So we're 81% new, 19% previous, older tech. And then look at the age of that older tech. And with us, you'll see it's very old and it's, for the most part, nearly all on lease. So I'm not concerned about our carrying values in that regard for either old or new tech.

There are no other questions at this time.

Well, thank you very much, everybody, and we look forward to speaking to you in 3 months' time, if not before.

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

Good day, and welcome to the AerCap's Q4 2025 Financial Results. Today's conference is being recorded, and a transcript will be available following the call on the company's website.

At this time, I'd like to turn the conference over to Brian Canniffe, Group Treasurer. Please go ahead, sir.

Thank you, operator, and hello, everyone. Welcome to our Fourth Quarter 2025 Conference Call. With me today is our Chief Executive Officer, Aengus Kelly; and our Chief Financial Officer, Pete Juhas.

Before we begin today's call, I would like to remind you that some statements made during this conference call, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. AerCap undertakes no obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call. Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated February 6, 2026.

A copy of the earnings release and conference call presentation are available on our website at aercap.com. This call is open to the public and is being webcast simultaneously at aercap.com, and will be archived for replay.

We will shortly run through our earnings presentation and will allow time at the end for Q&A. As a reminder, as analysts limit themselves to one question and one follow-up.

I will now turn the call over to Aengus Kelly.

Thank you for joining us for our fourth quarter 2025 earnings call. This was a record year for AerCap with exceptional financial and operating performance, driven by disciplined execution across all of our business lines.

In 2025, we reported record GAAP net income of $3.8 billion or $21.30 per share, and adjusted net income of $2.7 billion or $15.37 per share. Full year revenues reached an all-time high of $8.5 billion, while sales volumes totaled a record $3.9 billion. During the year, we had cash CapEx of $6.1 billion, and we generated $5.4 billion of operating cash flow for the full year 2025.

Building on these record results, we returned $2.6 billion of capital to our shareholders last year, our highest annual amount ever through the repurchase of approximately 22.1 million shares and the payment of quarterly dividends.

At the same time, we strengthened our balance sheet, resulting in a credit rating upgrade from Fitch, and a net debt to equity level of 2.1x at year-end. We received $1.5 billion of insurance and other recoveries related to the Ukraine conflict in 2025, in large part due to the successful court judgment in June. This brings total pretax recoveries related to the Ukraine conflict since 2023 to approximately $3 billion, which exceeds the net charge of $2.7 billion that we recognized in 2022.

These key achievements underscore the strength of our company and the value we deliver to you, our shareholders every single day. As we look to the year ahead, our outlook remains strong, and that is why we are announcing an adjusted EPS range of $12 to $13 per share for 2026, not including any gains on asset sales. We have also increased our quarterly dividend to $0.40 per share. This is on top of the new $1 billion share repurchase program we announced in December.

Moving to business activity during the year. Ongoing secular trends continue to underpin the strength of aviation assets globally. Demand remains robust with recent industry-wide load factors at record highs, while delivery delays and maintenance backlogs have kept supply constrained. To that point, it is encouraging to see increases in OEM production rates in recent months, which should start to alleviate some of the backlog for new aircraft. That said, we do not expect to see a normalization of the supply demand imbalance until sustained higher monthly production rates are achieved.

As I have said before, aircraft manufacturing is a complex industrial process and production surprises to the upside simply do not occur. So while demand dynamics may evolve, we remain confident that the current structural shortage of aircraft will persist at least through the end of this decade.

Against this backdrop, in 2025, we executed 705 transactions, positioning AerCap to capitalize on these favorable market conditions. This included the sale of 189 assets, delivering a gain on sale margin of 27%, or 2x the book equity on our owned assets. The high volume of sales and consistently strong margins underscore the persistent demand we are seeing for our assets and their conservative book values.

It is worth mentioning that aircraft sales were particularly elevated last year. We sold 108 owned aircraft at an average age of 15 years, generating strong gains while improving the overall quality of our portfolio. We also extended 87% of our leased aircraft in 2025, up from 79% in 2024, which further highlights the strength of customer demand.

Airlines and lessors remain prominent buyers, accounting for more than 80% of the aircraft sales revenues last year. Balancing our robust sales activity. We also delivered strong organic fleet growth in 2025, with full year cash CapEx reaching $6.1 billion. As noted on our last call, we acquired Spirit's order book of 52 Airbus A320neo family aircraft last year, along with an additional 45 options from Airbus. More recently, in January, we announced a sale leaseback for 6 new Airbus A330neos with Virgin Atlantic, which will start delivering in the coming months.

These are just 2 examples of bilateral transactions that enable us to secure today's most in-demand aircraft outside traditional OEM channels. And in most instances, with delivery certainty before the end of the decade. With our scale, market intelligence and strong financial position, AerCap is uniquely positioned to continue executing such strategic transactions.

Turning to the Engine business. In 2025, we strengthened our engine offering by expanding our existing partnership with GE Aerospace, which will provide support to the GE9X engine. This partnership enhances AerCap's value proposition for airline customers worldwide, at a time when engine support and spare engines are in exceptionally high demand. Our engine leasing business continues to offer a very attractive investment opportunity in this regard. At year-end, we have approximately 100 engines on order, which once delivered, will further expand our capabilities and reinforce our leadership in this critical space.

Now turning to Cargo. 2025 was a landmark year for our Cargo business as we received certification for the 777-300ERSF passenger to freighter conversion program. This milestone allowed us to deliver the first 8 of our converted 777 aircraft to customers worldwide, helping them to meet strong and growing air cargo demand. The cargo market has shown tremendous resilience despite global trade tariffs and other geopolitical challenges. In addition to meeting demand, our cargo platform also extends the useful life of former passenger aircraft, enabling us to extract further value from our assets. Looking ahead, we remain focused on executing our robust pipeline of feedstock and expect to deliver another 15 cargo aircraft from our cargo conversion programs in 2026, 5 of which are part of the 777 conversion program.

2025 was equally momentous for Milestone, our helicopter business as it celebrated 15 years in operation. Demand across multiple segments remained strong, reflected in the full year utilization rate reaching 99%. Today, we have no Sikorsky S-92 helicopters available for lease. To put this into perspective, Milestone had 18 S-92 helicopters on the ground in 2020, which underscores the sustained recovery in this market.

Last year, we further strengthened our helicopter operator relationships by signing 71 lease agreements with 23 customers. The most recent being with Bristow Group for 5 new Airbus H160 in the fourth quarter of 2025, becoming the first lessor to bring this aircraft type into their fleet.

In closing, 2025 was a tremendous year for AerCap, a year that showcased the inherent strength and capabilities of our global industrial platform, combining scale, expertise and disciplined execution. We completed 705 transactions during the year. We purchased approximately 22.1 million of our outstanding shares and generated $5.4 billion of operating cash flow, all while strengthening our balance sheet and growing book value per share.

Looking ahead, we enter 2026, ready to build on this position of strength. We have over $3 billion of excess capital to deploy, which we will continue to allocate with a flexible and disciplined approach that has defined our strategy since inception, 95% of our order book is placed for the next 2 years and we have an average remaining lease term of 7 years on our existing fleet, providing us with exceptional visibility into future cash flows.

This degree of forward revenue certainty is something very few sectors can offer. These factors, together with structural supply constraints and the strong demand for aviation assets give us a high level of confidence in the outlook for the business. We look forward to executing our strategy and continuing to deliver long-term value for our shareholders in 2026 and beyond.

I will now hand the call over to Pete to review the financials in more detail.

Thanks, Gus. Good morning, everyone. Our GAAP net income for the fourth quarter was $633 million or $3.79 per share. The impact of purchase accounting adjustments was $74 million for the quarter or $0.45 a share. That included lease premium amortization of $25 million, which reduced basic lease rents; maintenance rights amortization of $36 million, which reduced maintenance revenue; and maintenance rights amortization of $13 million, which increased leasing expenses.

During the fourth quarter, we had $43 million of recoveries related to the Ukraine conflict or $0.26 per share. The tax effect of the purchase accounting adjustments and the net recoveries related to the Ukraine conflict was $5 million or $0.03 per share. So taking all of that into account, our adjusted net income for the fourth quarter was $660 million or $3.95 per share.

I'll briefly go through the main drivers that affected our results for the fourth quarter. Basic lease rents were $1.688 billion, basically flat compared to last quarter, and maintenance revenues were $225 million. Net gain on sale of assets was $253 million. We sold 55 of our owned assets during the fourth quarter for total sales revenue of just over $1.3 billion, resulting in an unlevered gain on sale margin of 24% for the quarter. As Gus mentioned, this brought our sales for the full year to a record $3.9 billion and a gain on sale margin of 27%, which translates into 2x booked equity value.

Interest expense was $474 million for the fourth quarter. Leasing expenses were higher than usual due to restructuring costs related to the Spirit Airlines bankruptcy. When we look at maintenance revenue and leasing expenses, we generally look at them in terms of net maintenance contribution on an adjusted income basis, which is maintenance revenue less leasing expenses other than maintenance rights amortization. When we generally expect the contribution to be around $30 million to $50 million a quarter on average, although it does tend to fluctuate from quarter-to-quarter mainly due to the level of maintenance activity.

In the fourth quarter, the net maintenance contribution was negative $106 million, so approximately $130 million to $150 million lower than normal. This reflects the net impact of the Spirit restructuring as well as other unusual items as well as the timing and maintenance activity that I mentioned earlier.

Our income tax expense for the fourth quarter was $78 million. Equity and net earnings of investments accounted for under the equity method was $80 million, and that was primarily driven by continued strong earnings and gains on sale in the fourth quarter from our Shannon Engine Support joint venture.

On the next slide, you can see a walk of our full year earnings and EPS. And as you can see, it was a record year for AerCap across a number of areas, including GAAP net income, adjusted net income, GAAP EPS and adjusted EPS. We had approximately $3.8 billion of GAAP net income for the year, which included $1.5 billion of net recoveries related to the Ukraine conflict. That resulted in a record $21.30 of GAAP EPS for the year.

After adjusting for the insurance recoveries as well as for purchase accounting items, our adjusted net income was approximately $2.7 billion. So that's an adjusted EPS of $15.37 per share, which is also a record. Our GAAP ROE for the full year was 21%, and our adjusted ROE was 15%. Operating cash flow was $5.4 billion for the year, and as a reminder, this does not include any proceeds from merchant insurance settlements or any gains on sale, both of which go through investing cash flow.

We continue to maintain a strong liquidity position. As of December 31, our total sources of liquidity were approximately $21 billion. That compares to uses of around $11 billion, resulting in a next 12-month sources-to-uses coverage ratio of 1.8x, and that reflects excess cash coverage of around $9 billion.

Our leverage ratio at the end of the quarter was 2.1:1, and our operating cash flow was approximately $1.2 billion for the fourth quarter. Our secured debt to total assets ratio was 10% at the end of December, the same as last quarter. And our average cost of debt was 4.1%, a slight increase from 4% last quarter. During the fourth quarter, we bought back 3.5 million shares at an average price of $127.63 for a total of $444 million. And in December, we announced a $1 billion share repurchase program. And today, we've announced an increase in our dividend to $0.40 a share.

One of the metrics that we focus on is growing book value per share. On this slide, you can see that AerCap's book value per share has increased by over $45 or 68% since the end of 2022. Over the past year, book value per share increased by 19%. And in fact, over the past 3 years, it has increased at a compound annual growth rate of 19%. Of course, this reflects in part the significant amount of insurance recoveries that we've had over the last 3 years, but it also reflects the company's ability to generate significant amounts of capital year after year.

So that covers our 2025 performance. Now I'll turn to our guidance for 2026. For 2026, we're projecting adjusted EPS of $12 to $13, not including any gains on sale. On the next slide, you can see a walk from our record adjusted EPS of $15.37 in 2025 to our guidance for 2026. The largest item is gains on sale of $3.95 that we had in 2025, and we have not included any gains in our 2026 forecast. We had high levels of other income in 2025 related to a number of specific items as well as higher interest income. So we're projecting other income to be $0.45 lower in 2026. Our effective tax rate was 13.6% in 2025 due to some releases related to prior years. For 2026, we're projecting an ETR of 15.5%. So that results in a reduction of $0.30. Other than those items, we're projecting our EPS to be higher by $1.80, which reflects the impact of lease runs, net maintenance contribution, SG&A, share repurchases and other items.

On the following slide, you can see a breakdown of our projected income statement for 2026, showing the major line items. For full year 2026, we expect to have lease rents around $6.7 billion, maintenance revenues of around $700 million and other income of around $200 million for total revenue of around $7.6 billion.

On the expense side, we're projecting depreciation and amortization of around $2.6 billion and interest expense of around $2 billion. We expect leasing expenses, SG&A and other expenses to total around $1.2 billion for the year. And I would note that the majority of the leasing costs associated with the Spirit restructuring were recognized in the fourth quarter of 2025. We will, of course, have downtime on aircraft that we've taken back from Spirit, which has an impact on lease revenue, and that's been reflected in this forecast.

We've assumed that we'll have cash CapEx of around $5.2 billion for the year, and we're forecasting asset sales of $2 billion to $3 billion. As you know, these figures can vary significantly as CapEx is largely dependent on OEM deliveries and sales volume in terms of the demand for assets and the time it takes to close those sales.

As I mentioned, we've assumed an effective tax rate of 15.5%, which assumes no specific tax releases as we had in 2025. In 2026, we expect to recognize earnings around $200 million from our equity investments, and that's primarily our engine leasing joint venture, SES. So altogether, that gives us projected GAAP net income of around $1.7 billion. After adding back purchase accounting adjustments of around $300 million, we expect to have adjusted net income of around $2 billion for the year. That gives us an adjusted EPS range of $12 to $13, again, not including any gains on sale.

So in closing, AerCap continued to perform very strongly during the fourth quarter, concluding a record year for the company across many fronts. As Gus mentioned, we continue to see a strong environment for leasing and a strong environment for aircraft sales, which is reflected in the record level of gains on sale for the full year. We're continuing to generate strong cash flows that in turn result in greater profitability and more financial flexibility, and we're deploying capital where we see the most attractive opportunities.

We also continue to return capital to shareholders. In 2025, we returned $2.6 billion to our shareholders through share repurchases and dividends. We announced another new share repurchase authorization of $1 billion in December. And today, we've announced an increase in our quarterly dividend to $0.40 per share. These actions reflect our strong confidence in the value of AerCap and in our outlook for the future.

And with that, operator, we can now open up the call for Q&A.

[Operator Instructions] For our first question, we'll go to Jamie Baker with JPMorgan.

A couple of high-level questions for Gus. So Gus, on the order book, totally understand your preference is to order at the bottom of the cycle when the OEMs come to you. I trust that's a fair characterization. But we still keep coming back to that existing backlog and the possibility that the next downturn is hopefully a long ways away.

So my question is, is there a point where the backlog window would grow so significant that you might feel you have no choice but to get in with an incremental sizable order?

Thanks, Jamie. Well, like you, we certainly hope that any downturn is a long, long way off. And in that regard, we certainly feel that, Jamie, given the supply dynamics that are in the market even if we did see any weakness on the demand side, the shortage of supplies, we think structural for a good bit of time.

So I take your point on the order book. But that being said, Jamie, last year, we added 103 aircraft to our order book, including options. None of those aircraft came through direct orders from the OEMs. It was all because of our positioning in the industry and how we were able to assist our customers. We also ordered 22 helicopters. And importantly, in the last 2 years, we have committed to purchase 281 brand new engines through our own engine business, which is 100% owned in-house, and the SES joint venture. So we have found very significant growth away from the tent in Farnborough or Le Bourget.

That's not to say, of course, Jamie, that we won't order with the OEMs. I'm delighted to order with them, but it has to be on terms that makes sense for our customers. And I do think just a bilateral straight-up deal, it's hard to see how that will add value at the moment given the duration of when you deliver this stuff. But there are other things that AerCap can offer to OEMs and discussions we've had with OEMs about that, that they value.

So I would say, if the right opportunity comes, of course, we will, but I have a high level of confidence in the capability of the AerCap platform, its global reach and penetration in the industry and the unique skill sets it brings, particularly through its engine business as well that give us access to opportunities that no one else would be able to open up.

Okay. That's great color. And then sort of as a follow-up, Gus. Lessors, if I just kind of step back, lessors are scaling up to sizes that at least for us, 10 or 15 years ago, we wouldn't have thought it was likely, right? So my question is, is there any size -- I don't know, maybe it's $100 billion. I didn't just make up a number, but is there any size where individual lessors simply becomes potentially too large?

Thanks, Jamie. I would say it's a nuanced answer. In terms -- to me, the concern I had when we were acquiring GECAS was would we be of a size where we had to participate in every transaction because we had so many aircraft coming at us or engines every week. So we had to place x aircraft, x engines, y helicopters, et cetera. And are you a price taker from the market? That was my concern at the time, it proved to be unfounded, and we are well able to exercise price discipline, placement discipline as evidenced by our results.

So to me, I think -- and of course, so I would say on that one, so long as I don't believe that we will have to take every transaction in the market, and we're not price takers, which I don't see, I think you could grow quite a bit from where we are. I do believe that. And then on the liability side, which would have been, as you rightly say, 10, 15 years ago, a very limiting factor as there were very few investment-grade lessors, there was very little public debt offerings, et cetera. That's changed dramatically. While there nearly every lessor in the world issues public debt, every big institutional investor, bond fund, bank has an aviation division now and has understood the space a lot more and realizes through thick and thin that aircraft are a safe store of value and a hard dollar asset.

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

Last week or was it 2 weeks ago, in Dublin, Gus right, there was a lot of talk about an A220-500. And what's your take on the airplane? What does it mean? If Airbus were to do something like that, would that provoke some competitive response from Boeing? And you, yourself, being a large fleet owner, how do you think about it?

Look, candidly, I just don't see anywhere in the market that the airplane is needed. Airbus are the market leaders in the narrow bodies. I think they'd be just cannibalizing their own market share, incurring a lot of cost. I know the A220-300 program, they want to make it more profitable. I think they just focus on their efficiency of manufacturing the aircraft rather than trying to just scale up with more volume because I think they're only eating their own market share. It's not solving a problem that exists in my view that aircraft.

Got it. Got it. That's clear. And then in the quarter -- or in the year, excuse me, end of the quarter. You guys have been very successful at selling aircraft. When does that trade end? So maybe this is a follow-on to Jamie's question. Like how do we think about a transition from AerCap selling aircraft at a gain to maybe just more of a focus on the traditional leasing model?

Well, I'd say, Ron, if you look at our earnings profile, the vast, vast majority of our earnings comes from the operating business. While the gain on sales or percentage margins are higher than usual, I would say that if you go back to 2006 when we became a public company of 20 years, I think for all 20 years, maybe 19 years, we have sold assets at a gain. That speaks to the discipline of how we acquire assets, but most importantly, how we manage them and how we manage the maintenance cost of those assets and the condition we manage those assets, too. Because at the end of the day, an aircraft is really just a piece of tin, and without records and management of those records, it is an expensive piece of tin.

So to generate value on a consistent basis over a 20-year period, which this company has done, it is about how you manage that asset every single day. And we've demonstrated that. So I'd be highly confident that as we go forward, I mean maybe we won't be at 2x book equity forever. But if you look at our history, I think, Pete, on average the last 20 years, we sell about 1.3x book equity, is it?

Yes, a little above that answer.

Yes. And that's going through the average of going through the financial crisis, COVID, Russia. And what I point to, Ron, I think is important is the stability of AerCap's earnings through thick and thin. Our average GAAP ROE for the last 20 years is 951 basis points above the 5-year treasury for that 20-year period. And that is a GAAP number, which includes the impact of the losses in Ukraine, COVID, the financial crisis. I would challenge you to find any industrial company in the aerospace sector that could match the stability of those returns or indeed the outlook that this company has.

Yes. No, for sure. And then maybe just one last quick one. Everything seems really good right now kind of across all the segments. When you think about risk mitigation, what worries you? I mean, there's got to be something that maybe doesn't keep you up at night, but at least in the back of your head. What would get your spidey sense going that, we got to think about this.

Yes. Well, I think that for me, Ron, everything boils down to the day-to-day of the business, the operations of the business that we are 100% focused on making sure that our assets are moving efficiently as quickly as we can. They're on time, on spec, they're on budget. That is what drives the business, the internal operations of the business. That's things like internal audit, they're boring.

But things like that really make a difference in the long run of how you manage the business. We have very high-value assets, so very high CapEx, very low numbers of people against that. So not much in the way of labor. But it's vital, therefore, that all the process, the people you have that they're 100% focused every day on doing the right thing and following the process procedures that underpin how this company operates. And that, Ron, from that, everything flows. If that breaks down, it's lights out.

We'll take our next question from Moshe Orenbuch with TD Cowen.

Great. And congrats on some really impressive results and even a higher level of excess capital than 3 months ago. Maybe on that issue, could you talk a little bit about how you see that deployment of that excess capital? And it seems like there isn't much if any of that embedded in your guide for 2026?

Sure, Moshe. So in terms of the guide, first off, I mean, we've assumed that we would use our remaining authorization and then do some other buybacks on top of that for modeling purposes. And look, if you look at what we did in 2025, buying back $2.4 billion worth of stock, I mean that's indicative, I think, of our view there in terms of the attractiveness of the stock.

I think in terms of leverage and how we use our excess capital over the medium term, I would expect that to start to revert towards more normal levels towards our target. But as Gus mentioned before, we're really focused on the opportunities, where can you get the most value in deploying capital, whether that's buying back stock, whether that's adding to the order book, the engines, all of those type of things. And so those opportunities come along from time to time and we act on them. And we want to be able to act on them in a big way. And I think given our positioning now, we obviously have a lot of capital that can be deployed for that purpose.

Right. And maybe in one of your slides, you noted over 100 aircraft were added to your order book from Spirit and other transactions and kind of talked about that a little bit. As you look at the landscape, do you think that future years will have comparable levels? How should we think about what the opportunity set is out there as we go forward?

Sure, Moshe. And you're right. Not only did we add the 103 aircraft last year, but as I mentioned in an earlier comment, in the last 2 years, we've added 281 brand-new engines. That's a significant amount of growth in our 2 engine businesses. And we -- like my view has always been in this business, I've said to you guys, aviation is a growth business. Every 15 to 20 years, the number of people traveling doubles. Leasing is a growth space within that. The airlines will always need us. The airlines' net profit margin next year will be around close to 4% per IATA. That is a business that always needs capital. It's a business that will need aircraft, and we supply both and we can manage both.

So I would be very confident that as we look forward, as the aviation industry grows, opportunity will come. We've demonstrated year in, year out that we've always found attractive opportunities for our shareholders. Last year was no exception. This year is off to a good start as well. You saw the announcement that we added another 6 widebodies with Virgin Atlantic. Again, these are bilateral transactions in time frames that are just not available traditionally with traditional orders with the OEMs. And so we're always looking to how to allocate the capital in the best way. And of course, we believe that our shares still represent the cheapest aircraft in the world.

And we'll next go to Terry Ma with Barclays.

Pete, I think you mentioned some of the downtime from the Spirit aircraft was kind of contemplated in the guide. I was maybe just hoping for an update on timing of kind of when those get kind of released and go back into service? And how much of that was actually contemplated for this year?

Sure, Terry. So we've baked that into our numbers, into our guidance that we've provided here for 2026. We'd expect the first of those aircraft to start coming back in the second half of the year.

Got it. And when do you think all of those actually come back? Is it this year? Or does it kind of drift into '27?

Some of it, I think it will go in -- some of it is going to go into '27. I mean we'll see how fast they can get done. Obviously, we'd prefer sooner. But we've assumed that some of that comes back in '26 and then bleeds into early part of 2027.

Got it. Okay. That's helpful. And maybe just a follow-up on the capital allocation question. You guys gave some color on what the priorities are kind of medium term. But as you kind of sit here today for 2026, like maybe just kind of rank order kind of the most attractive uses of capital, whether it's buybacks or some like one-off deals that you see?

Thanks, Terry. Terry, I wouldn't rank them per se. I mean, to me, the uses of capital, our return of capital to shareholders, obviously, the buybacks, we have very small dividend, asset acquisitions, be it engines, aircraft or M&A for that matter. As you know, we participated in an M&A process earlier in the year.

But the key is discipline, Terry. Any one of those 3 are just fine with me so long as the outcome of those decisions is to increase the value of this company, by increasing earnings on a risk-adjusted basis. That's the only reason we're here, nothing else. I'm not here to grow for the sake of growth. We're here to make a return for our shareholders. And whichever one of those capital allocation strategies or all 3 of them for that matter, they will be the ones who we'll follow that will add value.

And we'll go next to Catherine O'Brien with Goldman Sachs.

So I have a bit of a follow-up to Moshe and Terry's question. Gus, you've made it clear you continue to see very good value in buying back your own shares over the last couple of these calls in the last several years. Your leverage is still well below your target at 2.1x at year-end. Should we interpret this as you're seeing more unique and significant opportunities to acquire assets over the next year or so and you want to have dry powder? And I guess like if that doesn't materialize over the next 6, 12 months, how quickly and aggressively will you pivot to shareholder returns? I guess I'm just trying to understand, is there a minimum leverage where you not want to sit at for more than a quarter or 2?

I think, Catherine, you've got to put a little bit of context around the current debt equity ratio because of the large insurance recovery that came in just a few months ago. And so that has had a big impact on it. So you don't just distribute that just as quickly. And if you look at what we did last year, it's a good indicator of how we think. As we said, we had a record amount of return of capital to shareholders with best part of $2.5 billion. And in addition, we deployed $6.1 billion of CapEx last year, that was cash CapEx, and then we added a very significant amount of assets to the backlog.

So as I look forward, I'm not concerned about the ability of the company to find attractive uses of capital. And if that is buybacks, as I said on the earlier call or asset acquisitions, et cetera, very happy to do it. But we have always managed to do that. And I would imagine that we will.

Pete, anything to add?

No, I agree with that. Look, I think, Catherine, over time, as I said, I think it is going to get closer to the target level. But obviously, we're looking for the right opportunities to deploy it. The worst thing you could do is to try and chase growth by doing the wrong deal.

Absolutely agree. I think you guys all speak to that. Another one, in the industry, another owner of engine assets announced they'd be looking to convert engines to power turbines to service data centers. Is that something you guys are exploring? And can you just remind us how many engines you own that are not under your agreement with CFM?

Sure. Well, to start with, of course, we're looking at this. And if it turns out that the demand for what are currently commercial aerospace engines, if that demand to convert them into ground-based power generation for data centers is very durable and is long-lived then, of course, we will participate in that either directly or indirectly, directly by converting the engine into a ground-based power generation or indirectly by taking advantage of this surge in demand. But at the moment, we want to make sure that this demand is a durable demand and it's not fleeting. And that's our focus at the moment is sizing the market. And from there then, we will participate, as I said, one way or the other.

In terms of the quantum of engines that we have ourselves, if you look at what's installed on our aircraft, take the CFM56 model, we are the largest owner of CFM56s in the world. And I would remind you that all of our engines are serviceable and have to be returned for the most part, in full life condition, which is very different to a portfolio of engines that is half-life or run out engines and you're swapping modules to make a serviceable engine. So when we look at the engine portfolio that we have, Catherine, on any of those metrics, we would have more engines than anyone in the world.

And we'll go next to Kristine Liwag with Morgan Stanley.

So maybe following up on the Spirit order book that you've taken and maybe this is a more theoretical question in practical. But if you look at those aircraft slots that you were able to get, how much of a value did you get if you were to have ordered that on your own? I mean are those planes even available to acquire? But how do you measure value?

Well, that's where the knowledge and the wisdom is, understanding the differences in price and value. And I would say, given our market knowledge, we lease more airplanes than anyone. We lease more engines than anyone. We know where the delivery slots are with the OEMs. That, all that data comes together to assess what we think the value of an aircraft is in any given year.

And [ closer-in ] aircraft have a premium because it is availability. And so when we looked at the proposition with Spirit, and we saw the order book, we felt that there was significant value there versus the OEM alternative, and that value was composed of the proximity in terms of time and also the absolute price level. Is that okay? Okay.

Great. And would you like to quantify any of that, Gus?

I won't, if you don't mind. Thanks very much.

Yes, no worries. I thought I'd try. And if I could do another follow-up, you've already received more in insurance proceeds and the charge you took regarding Ukraine. I was wondering, can you remind us how much more unresolved or unsettled litigation you have and if you're able to recover more, how much that could be?

Well, Kristine, we do have a case ongoing, this is pursuing the operator insurance reinsurers. So that's the case in London that will -- we expect will go to trial late this year. We haven't included in our guidance or in our projections any further recoveries on that or from the Russian insurers directly. It's possible that we could get some there, but it's just very hard to know. And obviously, as you said, we've already gotten $3 billion back, which, from our perspective, is a huge result. Obviously, we have taken everything that we can. But at the moment, we're not projecting anything.

And we'll go next to Arren Cyganovich with Truist Securities.

I was wondering if you could talk a little bit about any technology investments that you potentially could be making or any investments that you have made recently that are improving the efficiency of the company? I know your company's quite efficient already, but just curious what you're seeing on there.

Sure. Well, I would say the biggest investment we make is around -- and we always have because we have more data than any other participant in the aviation industry. And that data is used, as I just referenced in the earlier question, to assess what we believe value of an asset is. The value of an asset is a function of market demand, it's a function of the condition of your assets, and it's a function of where you think market demand will be and what you think the cost of maintaining assets, that particular asset will be in the future.

So you take all -- that gives you data and we're always putting money into our IT systems, our technology systems in AerCap to improve, to enhance the efficiency of that data. The same is true then in particular, when it comes to maintaining the assets. As I said in prior calls, if you spend $100 million on an airplane, you will spend $100 million on maintenance over its life, or you might spend $120 million if you don't know what you're doing or you might spend $90 million if you know what you're doing. The proof of whether you did $90 million, $100 million or $120 million generally comes out in your margins versus your peers and also your gain on sale of older life assets. And you can see the results of that with our margins, both our operating margins on the core business and as well as gain on sale.

So we are always looking to try and utilize the vast quantity of data that we have to make our decisions better informed. That's not to say that we -- that doesn't mean that we're making some massive AI investment. That's not the case. The case is that we look at the different ways we can enhance the data we have all the time.

Okay. And then this is kind of a small one, but the CapEx guide for the year, $5.2 billion, I think the last public disclosure of what the obligations were was in the second quarter's $5.8 billion of obligations, like $600 million or so less now. Were those sales or delays? Just curious what the drop-down was?

Well, we had a pretty significant amount that we did in the fourth quarter of this year. So I think that was a lot of CapEx in the fourth quarter. So it wasn't -- not meaningful delays from what we had before. I think it was just, some of that may have been front-loaded that we did last quarter.

So pull forward from the 2026 estimate?

Yes. I think because we're giving a next 12 months estimate, right? And so yes, this last quarter was high for CapEx, it was $2 billion total or $2.1 billion of cash payments that we made. A fair amount of that was PDPs, but also deliveries in the fourth quarter. So we think $5.3 billion is a reasonable number for next year. It could grow if we find additional opportunities. And we have seen that in the past where it's actually grown during the year because even though you might see some delays because of production issues with the OEMs, we've also added, in some cases, whether that's engines or helicopters or aircraft during the course of the year. So I think it's a reasonable number for now.

And we'll go for our next question from Shannon Doherty with Deutsche Bank.

Congratulations on the strong results this year. Gus, this may be a follow-up to Ron's question asked earlier in the call. But in general, do you foresee any sort of systemic risk to aircraft lessors that some financially weaker airlines may fail to meet contractual return conditions, just simply based on the high maintenance escalation costs that we're seeing? I understand this would be a bigger problem for the airlines, but I'm just curious to get your thoughts.

Sure. I mean, look, the reality is, of course, the airlines are a noninvestment-grade bunch, which is the great thing about them, they'll always need me, that's never changed and I don't expect it to ever change. So there will be instances, no doubt, in the future where they're not able to meet return conditions because they don't have the wherewithal.

Now in many of those instances, that's where someone of our position and scale is able to provide alternatives that no one else can. So if they can't meet engine return conditions, we might say, okay, we can use our engine leasing business or just our scale, our positioning with the engine MROs to facilitate -- to secure slots, to provide spare engines. And in return for that, then we will cooperate with our partner airline and see what they can give us in return. That's happened on several occasions, for example, with GOL Airlines, when they were in some difficulty in Chapter 11. We were able to provide them with engines. We took over some of their order book, something similar with Spirit, et cetera. So I would see it as part of the daily cut and thrust of our business, and it's something that we manage year in, year out for the last 20 years.

As my follow-up, we know that lease extensions have been historically high over the past couple of years. When do you expect renewal rates to decline or perhaps normalize? And what percent of your existing fleet are COVID leases? Do you expect them to run off, let's say, 2031 or 2032 or so?

Sure. Let me deal with the first part, and then I'll ask Pete to comment on the COVID leases. Extensions are elevated, you're right. There are 2 things driving that. The first is, of course, the airlines know that the OEMs won't deliver on time. As I said in my prepared comments, you just don't get surprises to the upside on aircraft production. So they know that and they know that it's not for 1 year or 2 years, it's structural for the long term. And that's why we have seen these elevated extension levels for several years now, and I expect them to persist.

The second reason that I expect them to persist is that even when the technology delivers, what's happening is that because of the strain put on the engines and on the aircraft, they do not last as long in service before they need an overhaul as the previous generation of A320s or 737s or A330s or 777s.

And so therefore, in order to fly the same number of flights, if you need to fly -- if you're flying 10, 737s, you might need 11 MAXs or 11 neos to do the same over the long run to accomplish the same number of flights because they do spend longer in the shop.

Now in time, I do expect the technology, which is always the case that there are technology improvements that will improve that time on wing, and the next one coming up will be the Pratt & Whitney Advantage Engine. We have the upgrades also to the LEAP-1A, which have begun. And similar upgrades we put into the LEAP-1B, they'll begin later this year. So steadily over time, we will see time on wing improve. But before those improvements flow through the whole fleet, which is massive, we'll be well into the 2030s.

And then to answer your question on the COVID part of our leases. So it's about 12% of our fleet today. And you're right, it will roll off over time, but it will pretty much be done by 2031, 2032.

And we'll go to our next question with Chris Stathoulopoulos with SIG.

Yes. Aengus, could you remind us so in your prepared remarks, you spoke about the normalization of supply-demand balance, and you don't see, I guess, monthly production rates meaningfully picking up. At your Investor Day, I believe you said end of decade, where you continue to see a supply shortage. And I think a quarter or 2 ago on a call in response to a question, it was the same. Has that changed?

And then could you also remind us at your Investor Day, you went into the economics of the engine market and why, I guess, the OEMs are really not incentivized to produce excess units given the, I guess, the initial sale and then the economics around servicing that in the secondary market.

Sure. So with regards to the first part of the question, supply-demand and balance, I still -- I do believe that around 2030, Boeing and Airbus will probably pick up production to where it gets closer to meeting the demand. But that being said, it might be 2031 or 2032 or 2030. But that being said, the other point that's very important to remember is what I just said on the previous question is that the technology being used is not as durable as the previous generation.

Taking A330-300 with Rolls-Royce engines, that thing could go forever, our 777 GE90, they're just not as durable today because those engines, they're pushed much harder, they're running hotter, they're coming off wing more often, which means that the demand for aircraft, in my view, the OEMs just won't be able to meet it for many years to come, even when they get the basic production up. It's because once these assets are in service, they're just not lasting. They're not spending as much time in service as the previous generation. And that's a hidden aspect that is not as visible, obviously, as Boeing missing a production target. So in my view, I do believe that supply will be structurally limited for a very long time, well into the 2030s because of those 2 events.

The other thing, though, that's very important, as I referenced and you bring up from the Investor Day. We have never ever seen a significant period of oversupply of aircraft on a global basis in my career, which is 30-odd years, never happened. Why is that? Because airlines do go bust. And that was the case, of course, with all the U.S. majors at some period of time.

The reason is that, yes, a region can be oversupplied with aircraft due to a downturn in that region. But the engine OEM sells their engine on day 1, the day the aircraft is delivered for about 25% of cost or 30% of cost. The airframer, Boeing or Airbus, gets 100% of their revenue on day 1. Now the engine guy only makes money if those engines get to shop probably 3 times, once after maybe 8 years, once after 14 years, once at 18 years. The single most important thing any engine OEM does is that last shop visit when the aircraft is around 18 years of age. That is the most cash flow positive, highest margin thing they do. The least attractive thing they do is deliver a new engine to Boeing and Airbus.

So if they ever see, and this is the case for the last 30 years, a period of significant oversupply coming to the market, they will be the ones who will lose the most because oversupply of new aircraft will mean early retirement of old aircraft, those old aircraft with the ones where that shop visits is performed on.

So it's turkeys voting for Christmas, if they allow Boeing and Airbus to overproduce aircraft in a market where there is oversupply, and they have never ever done it, and I don't expect they will. And that's one of the key reasons on a macro basis why AerCap has produced such stable returns for decades, and I don't see that changing.

Great color. And I guess along those lines, if you could speak to -- I know there's been a few questions around capital allocation priorities this year and thoughts around, I guess, buybacks and acquisitions. But one of the things that I think is important and perhaps sometimes forgot about and what is unique and certainly shows up in your results here is this barbell approach to managing your portfolio. At a high level, could you just run that down for us? I think that's important for us to revisit, if you will.

Certainly. And when we sell assets, we're not selling them to generate a gain. Of course, when we decide to sell an asset, we want to maximize, to the greatest extent possible, how much we get for the asset. But the driver is to look at where the portfolio will be. And so in the barbell approach, as you rightly say, the way we want the portfolio to be is if we have older technology assets like the 73, the A320, the 777, A330. We want them to be old assets. We do not want young variants of those assets. At some point, the 777 and the A330s and the A320s will be replaced in large part by the neos, by the MAXs, by the 78s, et cetera. It hasn't happened just yet, but it will happen at some point in the future.

And so if you have, say, a 2017, A320 or 777, for that aircraft to return a fair cost of capital over the lifespan, it has to still be in service in 2042 if you bought it in 2017 because it's 25 years of service. I simply do not believe that, that will be the case. At some point in the 2030s, the demand for those assets will fall off. And therefore, you do not want to have a young variants of those assets. Now having an old variant that's 18 years old of an A330 or 737 or 320, that's perfectly fine because you're going to get another 5 years or 6 years ,5-odd years out of it and you'll do just fine off the asset. And then when it comes to buying assets, what we want to make sure is that we're in the assets of the future, the ones that we believe the most durable demand is out there, and that's where we invest in the A321neo, A320neo, 737 MAX 8, 787-9, A330-900, A350-900.

I'd like to now turn the call back over to our speakers for any final or closing remarks.

Thank you, operator, and thank you all for joining us for the call, and we look forward to speaking to you again in 3 months' time.

Thank you. And that does conclude today's conference. We thank you for your participation. You may now disconnect.

Good day, and welcome to AerCap's Q3 2025 Financial Results. Today's conference is being recorded, and a transcript will be available following the call on the company's website. At this time, I would like to turn the conference over to Joseph McGinley, Head of Investor Relations. Please go ahead, sir.

Thank you, operator, and hello, everyone. Welcome to our third quarter 2025 conference call. With me today is our Chief Executive Officer, Aengus Kelly; and our Chief Financial Officer, Peter Juhas.

Before we begin today's call, I would like to remind you that some statements made during this conference call, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements.

AerCap undertakes no obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call. Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated October 29, 2025.

A copy of the earnings release and conference call presentation are available on our website at aercap.com. This call is open to the public and is being webcast simultaneously at aercap.com and will be archived for replay. We will shortly run through our earnings presentation and we'll allow time at the end for Q&A. As a reminder, I would ask that must limit themselves to one question and one follow-up. I will now turn the call over to Aengus Kelly.

Thank you for joining us for our third quarter 2025 earnings call. We are pleased to report another exceptional quarter for AerCap's shareholders. In Q3, we generated GAAP net income of $1.2 billion and earnings per share of $6.98, driven by strong gains on sale and further insurance recoveries. Our core business continues to perform extremely well, with adjusted net income of $865 million and a record adjusted EPS of $4.97.

Given these solid results, and our positive outlook for the remainder of the year, we have increased our 2025 full year EPS guidance to $13.70. On the aircraft side, we continue to see strong demand from our customers around the world, and the environment remains supportive for both margins and returns.

Once again, utilization rates topped 99%. And on that note, I am delighted that we delivered our first converted 777-300ER Freighter in September, which should help to sustain the historically high utilization rates we are seeing as those aircraft deliver to customers. We also had yet another healthy extension rate in the quarter with approximately 85% of our 33 used aircraft transactions extending on very attractive terms.

Encouragingly, the extension rate for widebodies was 100%, and including 9 787s, 3 777-300ERs and 2 A330s in the period. One thing that seems to be overlooked in the focus on MAX production rates and narrow-body engine issues is how far the OEMs are behind in the widebody production side as well. As an example, both OEMs produced more wide-body aircraft in 2008 than they did last year and I do not expect them to surpass the peak of 2016 this decade.

As a result, wide-body aircraft will remain in high demand for the foreseeable future. The picture is similarly robust on the narrow-body side with strong demand across the board. This is particularly helpful at the moment given we're taking back 27 aircraft from Spirit Airlines. We will, of course, have downtime and engine shop business costs associated with this process.

The majority of the engine shop visit costs will be incurred in the fourth quarter. These engine costs are included in our increased guidance for the year. We will also benefit from the acquisition of Spirit's 52 Airbus A320neo family order book. as well as a further 45 options that we negotiated with Airbus.

We believe that the timing and pricing of these units is far superior to what we could have negotiated with Airbus directly. In fact, the order and options mean we have now agreed to purchase over 200 aircraft in bilateral deals since 2021 without placing a direct OEM order.

Turning to the engine business. We continue to focus on deepening our relationships with our OEM, airline and MRO partners. This was evidenced most recently with our latest announcement with GE Aerospace where we signed a 7-year agreement to provide lease pool management services for the GE9X. This agreement also extended AerCap's ongoing lease pool support for GEnx, GE90, CF6 and CF34 engines and follows on from our separate partnership with Air France KLM, which we announced at the Paris Air Show.

The provision of spare engine support has become a key part of AerCap's overall customer proposition, particularly at the moment, given the global engine shortages. Our portfolio of 1,200 spare engines, 90% of which are the latest technology is another key differentiator between AerCap and any of our competitors.

Since closing the GECAS transaction, we have committed approximately $10 billion to engines to our 2 engine divisions, AerCap engines and SES.

Turning to Milestone Aviation Group, our helicopter leasing business. Fleet utilization also remains high. During the quarter, we extended a large percentage of helicopter leases with existing customers across a broad array of mission profiles and operators. From a fleet perspective, we adopt a balanced portfolio management strategy in our helicopter business. Similar to our barbell approach on the commercial aircraft side.

We continue to invest in new technology, medium and super medium helicopters at accretive returns, while divesting out of midlife are out of production types. During the quarter, we delivered new technology equipment to customers operating across a full spectrum of mission-critical segments, including offshore oil and gas, emergency medical services and search and rescue, including an AW139 to Bristow configured for use in the U.K. search and rescue operations.

Now on capital allocation. We continue to see the durable demand for our assets reflected in very strong sales volumes and margins. As you will recall, last quarter, we increased our sales volume guidance for the year by 25% to $2.5 billion. Despite the lower number of sales closing, we had good line of sight to what was ahead of us and it has been great to see this materialize. In fact, both the sales volumes of $1.5 billion and the gain of $332 million were records in themselves.

The timing of closing each deal is always variable, but there is no doubt we are seeing a positive environment overall. Further, while we will not be selling $1.5 billion every quarter, you can see the gain on sale has been an important, repeatable and profitable aspect of our earnings over a very long period of time.

We have generated gains on sale in every quarter for the last 40-plus quarters are more than 10 years in a row. Our average unlevered margin is over 15% are more than 1.5x booked equity value over the course of the last 40-plus quarters. This is despite various challenges the industry has faced and includes all of the quarters during COVID.

Those returns have been further enhanced by highly disciplined capital deployment into accretive opportunities in M&A, asset acquisitions and share repurchases. Recently, we have been asked whether the long-established arbitrage between where our assets price in the private markets and the level of those assets trade in the public markets still exist, given the improvement in valuation of the stock above 1x book equity value.

The truth, as you will see from the chart on the left-hand side is that it is not the absolute level of either sales or repurchases that matters more, but the delta between the two. So while AerCap shares are trading at a higher price to book multiple, the increases in sales margins have actually been greater. This is why we continue to find share repurchases to be extremely attractive.

As you can see from the chart on the right-hand side, in the third quarter alone, we bought 5% of the market cap for $1 billion, a quarterly record for open market purchases for AerCap. We simply cannot demonstrate our conviction any clearer than that.

So in summary, this was another great quarter for AerCap with earnings and cash flows remaining strong throughout the business and the addition of up to 97 A320 Family aircraft to our order book. The favorable market environment continues, and this is reflected in the results across the group as a whole.

We continue to deploy capital effectively with the purchase of approximately $1 billion of stock and $1.4 billion of new equipment in the quarter. This shows the remarkable cash generation and optionality we have for capital deployment at AerCap, a theme we expect to continue for the long term. With that, I'll now hand the call over to Pete to review the financials and the outlook for the remainder of 2025. Thank you.

Thanks, Gus. Good morning, everyone. Our GAAP net income for the third quarter was $1.216 billion or $6.98 per share. The impact of purchase accounting adjustments was $62 million for the quarter or $0.36 a share. We had net recoveries related to the Ukraine conflict of $475 million or $2.73 a share. That includes cash insurance settlements of $238 million as well as an award of $234 million of interest on the favorable decision by the London Commercial Court in June, along with some other smaller settlements. That brings our total recoveries to approximately $2.9 billion since 2023.

The net tax effect of the purchase accounting adjustments and the Ukraine recoveries taken together was $62 million or $0.36 a share. As a result, our adjusted net income for the third quarter was $865 million or $4.97 per share. We had a record quarter in terms of both the volume of assets sold as well as gains on sale. We sold 32 of our owned assets for total sales revenue of $1.5 billion. That resulted in gain on sale of $332 million and an unlevered gain on sale margin of 28%, which is twice our book value.

The large sales volume was driven by the continued strong sales environment as well as closing sales that had been signed up earlier in the year. As of September 30, we had $562 million worth of assets held for sale at this point, I'd expect our sales for the full year to be over $3 billion.

Besides the gains on sale and Ukraine conflict recoveries, there were 2 other main items that affected our results for the third quarter. First, we had a strong net maintenance contribution, that is maintenance revenue, less leasing expenses on an adjusted basis of $148 million.

That was driven by the release of maintenance reserves upon lease terminations, settlements we received from airlines and a provision release as the Azul restructuring agreement became effective. We're expecting higher leasing expenses in the fourth quarter related to the Spirit Airlines restructuring, and that's reflected in our updated guidance.

The other major driver this quarter was a significant increase in the lease trends, which in turn, resulted in a higher lease yield and a net spread of 8%, which is the highest we've had in 5 years. The increase this quarter was driven in part by some large transactions involving a number of older aircraft. We've also started to deliver our 777-300ERs which were converted from passenger aircraft to freighters and are now earning revenue.

Turning to liquidity. Our liquidity position continues to be very strong. As of September 30, our total sources of liquidity were approximately $22 billion. That includes $1.8 billion of cash and over $12 million of revolvers and other committed facilities. Our sources to usage coverage ratio at the end of the quarter was 2.1x, which amounts to excess cash coverage of around $12 billion.

Given our higher net income this quarter, including the net recoveries related to the Ukraine conflict, we generated significant excess capital, resulting in a leverage ratio of 2.1:1 at the end of September. Our operating cash flow was slightly higher than normal this quarter at approximately $1.5 billion.

We deployed a significant amount of excess capital this quarter and returned $981 million to shareholders through the repurchase of 8.2 million shares at an average price of just under $120. Including the share repurchases we've completed so far in the fourth quarter, that takes us to over $2 billion of buybacks so far this year.

Turning now to guidance. On our last earnings call, given the strong performance for the first half of the year, we raised our full year 2025 EPS guidance to approximately $11.60. As Gus mentioned, today, we are again raising our full year 2025 adjusted EPS guidance to $13.70. That includes approximately $2.70 of gains on sale for the first 3 quarters, but it does not include any gains on sale for the fourth quarter.

As I mentioned last quarter, our outperformance relative to guidance has been driven primarily by higher lease revenue, other income and gains on sale. We've also incorporated the expected impact of the Spirit Airlines Chapter 11 bankruptcy into this updated guidance.

In closing, we're coming off another record quarter for AerCap. As you can see, the environment for aircraft leasing and aircraft sales continues to be strong. We've continued to make progress in our Ukraine recoveries and we continue to be in a position of strength with a strong balance sheet, low leverage, strong liquidity and disciplined capital deployment.

We remain confident about the outlook for the business as you can see from the increase in our full year guidance and our repurchases of over $2 billion of stock so far this year. And with that, operator, we'll open up the call for Q&A.

[Operator Instructions]. We will take our first question from Moshe Orenbuch with TD Cowen.

Great. I was hoping that, Gus, you could talk a little bit about how you're thinking about the industry in the U.S. kind of over the next couple of years. Is this something where you're likely to see more significant consolidation or maybe broaden it out a little bit? And what -- are there areas in the world where you would kind of see the opportunities given the substantial amount of capital that you've got to deploy?

Thanks, Moshe. I'll start with the U.S. market. There's been a very significant amount of consolidation in the U.S. market over the last decade, as you know. I think there is room for some more limited consolidation plays in the U.S., but I'd say it's reasonably limited. There are not that many platforms left in the United States.

So to get your hands on one to be a rare enough asset. From our perspective, as we look forward, though we continue to see very strong demand coming out of the U.S. market that can be driven by longer-term demand for new technology aircraft as the older aircraft have to be retired at some point in the coming 5 or 6 years. And in the shorter term, of course, we see very strong demand for used aircraft to remain at airlines.

That's a trend that we see around the globe as well. And we don't see any sign of that letting up. The desire of airlines to transition as quickly as they can into the new tech asset simplify their fleet, create operating leverage in their business model. However, that's just not feasible because of the lack of supply of new aircraft, the amount of time these assets are spending in the repair shop and that is continuing to drive the demand for serviceable used assets, be they 20 years old or 15 years old or 22 years old. So as we look out, we see a pretty strong demand picture globally for some time to come.

Great. Pete, maybe just to kind of dig in a little bit on the margin discussion. You talked about kind of yield improving, your cost of funds improved. I would assume that some of that will actually be even better in Q4. There might be some impacts that offset some of that from some of the maintenance benefits you have this quarter. But could you kind of just generally kind of talk about how we should be thinking about that progression of the elements of your spread as you go forward over the next couple of quarters?

Sure, Moshe. So as you mentioned, net spread went up significantly in the third quarter by about 50 basis points to 8%. So that's the highest we've seen since 2019, and that was very positive. As we look out going forward, I think we will see some positive impact from the 777 freighters continuing to deliver COVID leases rolling off, although that takes a while, but that will be a positive.

But in the coming quarters, the offsetting effect we'll see will be from Spirit because we will have downtime on those aircraft that we've taken back because they have to get shopped -- the engines have to get shopped. And so I think that as we look out over the next several quarters, we should see that spread about where it is today.

We will take our next question from Jamie Baker with JPMorgan.

So Gus, Mark Streeter and I have obviously port over the air lease proxy, and it's pretty clear that AerCap is referenced as strategic bidder with a $55 all-stock offer. And we're curious for your thoughts on that bid and what you were thinking at the time. And now that this info is public, perhaps you would want to comment on the deal that ultimately was struck and any implications of industry consolidation for AerCap.

Well, let me start with the second bit first. Consolidation is a very -- is a significant positive for the industry, and we would encourage to continue and that is all positive for AerCap and our shareholders.

As it relates to our participation in the process, what I assume my shareholders want is for AerCap to be present in any significant M&A discussion that's ongoing around the world at any time. And you can rest assured that we are, that was evidenced in this case because it's a public company, so it's clear that we were there.

That being said, what you also want to see is discipline being exercised by AerCap. We are fully aware of the return on equity that we generate and we will continue to generate and we're aware of the return on equity that Air Lease generated and is likely to continue to generate. And there is only so much we would be willing to pay for that business.

We could not enter into a situation nor have we ever in any of these other M&A discussions we have, where we pursue a transaction at a price that will dilute our existing shareholders. So when it became apparent that our bid was not going to be enough to win, of course, we pivoted then to where I believe the best value aircraft in the world are because I am selling AerCap aircraft in the private markets at 200% of book equity, and I'm able to buy them back on the New York Stock Exchange at 110% of book equity.

Excellent. I appreciate that color. And then you're also on record as believing that the favorable aircraft supply demand imbalance is going to last through the end of the decade. But with Boeing and Airbus starting to get their act together, increasing production rates and then, of course, some of the bankruptcy driven returns, Azul, Spirit and so forth. Is your outlook still bullish through the end of the decade? Or do you think that, I don't know, some sort of equilibrium might happen a little bit earlier?

Well, short answer is I am, but let me explain that because you're right, of course, Boeing are slowly increasing the ramp in their production. But let me give you one example that I referenced in my prepared comments.

On the wide-body markers, more wide-body aircraft were produced by both OEMs in 2008 than were in 2024. Just think about that. The aircraft that were probably manufactured in around 2005, 2006, 2007 that are being retired today. Their replacement aircraft isn't even being manufactured by the OEMs at the moment.

So the wide-body market is extraordinarily acute and you saw that in our commentary around our extension rate, which is at 100% for widebodies. As it pertains to narrow bodies, even though we are slowly, and it is a very modest increase, bear in mind, Boeing is hoping to get to 42 deliveries a month, which is miles below where they want to be. Even when those aircraft come into service, they are not lasting as long in service as was envisaged. That's because different components of the aircraft, be it engine or landing gears are not lasting as long a wing and are going into the shop for repair.

That's chewing up the available parts that are available to make new aircraft, new engines or overhaul engines. Therefore, based on that, I know that narrow-body production rates are not going to hit the levels that the OEMs want. And even if they did to be candid, the amount of time that these assets are spending in the shop mean that, for example, if you had 10 NGs or 10 A320s flying a particular route as an airline, I suspect you're going to need 11 today of the new type.

Now so when I look out, wide narrow, I see a very constrained situation. Of course, you're right. There'll be the odd bankruptcy here and there that will put a bit of capacity in the sector for a few months or maybe a quarter or 2. But that will always get eaten up. And then furthermore, as it pertains to AerCap in that environment that I just spoke about with the engine shortage. We are the biggest owner of spare engines in the world. We have unique relationships with airline and OEM that enhance our position it adds to the power of the AerCap platform and enables us to get assets in the air faster than anyone else.

We will take our next question from Hillary Cacanando with Deutsche Bank.

Great. You said Spirit exposure is included in your fourth quarter guidance? Do you think there could be any further exposure in 2026 as well? And does your fourth quarter guidance reflect any potential idleness of the rejected aircraft? And if you could kind of just detail the exposure, whether they're -- are they all due to maintenance or are there any like unpaid rental fees that are included? If you could kind of detail that.

Sure, Hillary. So the impact of Spirit really is in 2 parts. First, you have the downtime on the aircraft, and that's likely -- we'll see that in the fourth quarter. We'll see that pretty much throughout next year, we would expect and then in addition to that, you've got -- and that's really because the engines need to be shopped. There's plenty of demand for those aircraft, but the engines need to be overhauled. That's the driver.

The second impact is the cost of overhauling those engines, so those engine expenses and we have factored in. So I expect that we will take the majority of those in the fourth quarter of this year. We're still negotiating that. That's still under commercial discussions. So I can't comment more on that.

But I would expect the majority to be in the fourth quarter, and that's what we factored in. But it's possible some of that could slip into next year out of fourth quarter and into next year. So that's what we based our guidance on.

The one thing you also have to -- sorry, Hillary, the one thing to mention there, of course, as Pete referenced, we will incur those engine shop visit costs, which is in our guidance, the anticipated ones. We'll have downtime. But against that, we were able to negotiate up to 97 aircraft, A320, A321 aircraft in timing and pricing that would not be available from the manufacturers. That once again speaks to the unique capability and power of the AerCap platform.

Yes. No, that's great. And I saw that you're getting 45 options for 45 aircraft. And in the bankruptcy filing, it had originally said 10. So it looks like you negotiated to get more option aircraft at this rate. So that was great to see.

I do have another question. I know 12 of those aircraft were already grounded so we've heard that those 12 aircraft to come back sooner than expected because they were already grounded? If you could -- could you just provide a little more color? Do you expect those 12 aircraft to come back soon? Or are they going to be grounded for a while?

What's happening here Hillary, as was set out in the court case is that we're taking back 27 aircraft. They're on the way back to us now in various stages. And then 10 aircraft remain with the airline and they paid the arrears, rents on those and they continue to pay current trends.

We will take our next question from Catherine O'Brien with Goldman Sachs.

So last quarter, you talked about seeing more opportunistic sale leasebacks coming to market. In the quarter, you obviously executed on those acquiring the 52 firm orders and 10 options from Spirit in addition to the other 32 options, which I'd be interested in hearing how those came about Airbus as well.

Just as a quick follow-up to Hillary's question. But I guess, bigger picture, are these the kind of transactions you're referring to? Or do you think size of transaction you are able to do means that you're likely to see growth opportunities with airlines outside of distressed situations as well. Just any thoughts on like what the size of these opportunities could be over the next couple of years?

Mean you never know. But of course, it generally, when I say something, I'm looking at something. And we had -- it's various sale-leaseback opportunities we're pursuing. We're hoping to close one of them we did in this instance. But again, the way that came together, is in a manner that no other leasing company in the world could have executed or could have even contemplated to be quite candid.

And when those opportunities present themselves, once again, my shareholders would expect me to be present and in those negotiations, and that's our objective here as well. We won't close all of them, of course, because as you saw in the -- as we discussed earlier on, we're not going to close transactions that are going to dilute our own returns. But as we look forward, there are definitely opportunities out there, but that's where discipline comes in. We're here to make money for the shareholders we're not here to grow the business for the sake of growth.

But it should be noted that since 2021, we have negotiated 200 aircraft acquisitions, including those options on bilateral deals. So we're getting them sooner and a better pricing than would be available and going to the OEMs. Furthermore, I might add, in the last 2 years or 9 months, we've returned $6.4 billion to our shareholders, which is equivalent to buying over $18 billion of assets at well below market rates.

No, all very impressive. Maybe just one last one and relatedly, despite a very active quarter, you just mentioned on the buybacks and the incremental acquisitions, your leverage ended the quarter at 2.1x. Can you just help us think about the guardrails between 27 target leaving dry powder to be opportunistic perhaps on some of the other deals that are out there that you were dispreference and where you ended the third quarter. Just how do we think about the moving pieces over the next quarter or 2?

Sure, Catie. So one of the things that has driven the leverage down over the last couple of quarters has been the significant insurance proceeds that we received. So about $1 billion in the second quarter of $475 million in the third quarter. So that has really contributed to that lower leverage, taking it down. I'd say, look, obviously, having room relative to our target gives us a lot of optionality in terms of the opportunities that we can pursue.

But we are deploying that capital pretty rapidly as well. And so you look at $1 billion of buybacks in the third quarter alone. That's the most we've ever done in the open market. And I expect we will continue to deploy capital like that. And so -- so over time, I would think that our leverage ratio starts to get more normal and get closer to the target level, maybe not up to the target level, but somewhat closer to it than today.

We will take our next question from Ron Epstein with Bank of America.

Gus can you talk a little bit about -- we've covered a lot of ground so far, but can you talk a little bit about the market for the A220? What do you see there? And what's going on there?

The A220 is one of a more kind of niche aircraft. Of course, we have some of them. And I think there's a -- every passenger that gets on that aircraft loves us, great past experience, spacious cabin, I'd encourage anyone to fly on us. That being said, the challenge around the aircraft has been around the engine time on wing.

And we would hope that in the coming year or 2, because it is a bigger aircraft relative to the E2-195 where the aircraft is a bit smaller, but the engine is the same. So the engine, we believe doesn't come under as much strain on the E2 as it comes under on the 220. So we would hope that as Pratt improves the time on wing and the durability of the parts in that engine that we'll see that aircraft become more durable in service. And if that can happen then, I think there's a solid future for us.

Got it. Got it. And then in your engine business, is there an opportunity to do more with Pratt? I mean, you're one of the larger CFM lessors, if not the largest, was there anything to do with Pratt?

I think, look, we, of course, we talk to pros, et cetera, what have you. So we wouldn't rule anything out. But of course, we are in partnership with both GE and CFM and providing their spares network around the world and managing the logistics of all those engines, the records the shop visits of their spares fleet, which is a very significant task and requires a lot of unique intellectual property that I think we'd be reluctant to share.

Got it. Got it. Got it. And then maybe just one last one. This one's a little bit out there, but maybe not. We're starting to see the emergence of more players and electric aircraft and hybrid aircraft.

How would you expect that those aircraft could get financed? Would you guys have any interest in financing sort of this next generation of smaller stuff, some of the ED tall stuff and urban air mobility stuff? Or would you kind of leave that to somebody else?

I have to wait and see. We did look at that several years ago when it was at its inception, and we felt it was better to be an intelligent follower than the initial innovator in that space. I think that still holds true.

We will take our next question from Terry Ma with Barclays.

I just wanted to touch on capital allocation. It's nice to see the buyback accelerate this quarter and also the Spirit deal. But last quarter, you also highlighted additional kind of sale-leaseback opportunities in engine deals. Maybe just update us on those and maybe rank order to relative attractiveness of each of those options.

Sure. Well, as you saw, we did execute there with the Spirit transaction. And Terry, as I noted, we've done now 200 aircraft and 10 billion of engine buys on bilateral basis since the last 4 years. So I mean those opportunities are out there.

But again, they must be ones that are accretive to our earnings. And there are plenty of opportunities to grow the business, but it must grow profitably. And that's where when we come to capital allocation, our job here is to make a return for the shareholders. That's our only job. It's not to make a return for the shareholders of Airbus. It's not to make a return for the shareholders of Boeing. It's not to make a return for the shareholders of airlines. It's for our shareholders. It's why we're here. They pay our wages.

And so when we see transactions that are accretive, of course, we will execute on those. Clearly, at the moment, we are selling assets in the private markets in the last quarter at 200% of the book equity value. We're buying the very same assets every day down on the NYSE at about 110% of book value. So if I can sell something for 200% and someone will keep selling me that at 110% when you do it the next day, that's a good use of shareholders' money.

Got it. That's helpful. I guess outside the Spirit deal, how does the opportunity for sale leaseback kind of look from a kind of returns basis?

I mean well, we haven't executed any in the last quarter than that. Of course, we're pursuing them. There are other ones you pass on, much like on the M&A stuff, there's ones we've passed on, of course, over the last 3 or 4 years. So we're we will look at all of these transactions, but they do have to hit the hurdles that we want or else we won't do it.

Got it. Helpful. Maybe one last one for me and for Pete. Like you guys delivered the first freighter in September. What's the cadence for kind of additional kind of deliveries going forward?

Well, we delivered the first few in September and then we've delivered some more this quarter, and those will just roll out over the course of the next year or 2.

Yes. 5 are delivered now at this point, and they probably deliver another couple before Christmas and then the 5 or 6 next year. But they're approximate because, as you have seen, deliveries are moving targets.

We will take our next question from Chris Stathoulopoulos with Susquehanna International Group.

Aengus, on the extension rates. Curious on your thoughts on '26 next year, I realize it's still early, but there's still degree of uncertainty out there geopolitical economy tariffs. Just your thoughts on that, whether you see any sort of, I guess, change from what you've been able to achieve thus far year-to-date?

We don't. And I don't think that's going to change. You've got to remember, of course, that when airlines are looking at their fleet, they're not looking at the next quarter the next half year, the next year. They're looking on older aircraft, the minimum duration is 3 years, but more around 5 to 7, on new aircraft are looking at 20-plus years.

So their fleet plans are not going to be significantly altered by short-term issues geopolitically. That's what we're seeing. And as we look out in the new year, I'd expect to see more of the same because I don't see, as I referenced earlier on, the levels of production, the time on wing that these assets are achieving. I don't see those factors changing.

Okay. And as the second -- I realized you've spoken at length on the gains on sales, strong secondary market. But if you could perhaps give a bit more color on the type of transactions, aircraft types, curious how that has evolved and whether you -- you see that changing going into '26?

We never -- and as I noticed, since we were -- we became a public company in 2006, every year, we've sold assets, we sold them at a gain. Indeed, for the last -- since -- as you look at the chart on Page 5, since the beginning of 2023, the assets we've sold have traditionally been old mid-life assets out of production, but we still managed to generate a gain of book equity of 190%.

The reason we sold those assets is not for the game. The reason we sold those assets is that we know at some point in the future, airlines will have to leave the older assets. It's a few years away. I think it will be the end of the decade. That being said, I want to position our fleet for the future always.

So that's how we think about asset sales, the one exception to that really is we have sold a handful of newer technology assets as part of our ongoing reduction in our Chinese exposure, which continues and -- because China is mainly a new aircraft market, that's been the case there.

But the reason we sell assets is to improve the quality of the portfolio. The power and capability of the platform has meant that for the last 2-odd years and particularly in the last several years as the capabilities of the GECAS platform that we purchased, particularly as it pertains to engine cost shop visit management and the ability to manage the ongoing life of engines has enabled us to accelerate those gains. And that's a structural capability that we have that no one else has in our business.

There are no further questions at this time. I will turn the conference back to Aengus Kelly for any additional or closing remarks.

Thank you, operator, and thank you very much for joining us for today's call and we look forward to speaking to you again with the full year results. Thank you.

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

Good day, and welcome to AerCap's Q2 2025 Financial Results. Today's conference is being recorded, and a transcript will be available following the call on the company's website. At this time, I would like to turn the conference over to Joseph McGinley, Head of Investor Relations. Please go ahead, sir.

Thank you, operator, and hello, everyone. Welcome to our second quarter 2025 conference call. With me today is our Chief Executive Officer, Aengus Kelly; and our Chief Financial Officer, Pete Juhas.

Before we begin today's call, I would like to remind you that some statements made during this conference call, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements.

AerCap undertakes no obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call.

Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated August 30, 2025. A copy of the earnings release and conference call presentation are available on our website at aercap.com.

This call is open to the public and is being webcast simultaneously at aercap.com and will be archived for replay. We will shortly run through our earnings presentation and we'll allow time at the end for Q&A.

[Operator Instructions] I will now turn the call over to Aengus Kelly.

Thank you for joining us for our second quarter 2025 earnings call. We are pleased to report a record quarter of earnings, generating GAAP net income of $1.3 billion and earnings per share of $7.09. This reflects strong execution and demand for our assets as well as the successful outcome in our contingent and possessed insurance case in the commercial court in London in June.

Adjusted net income was $502 million, and adjusted EPS was $2.83. Given these strong results and our improved outlook for the year ahead, we have increased our 2025 full year adjusted EPS guidance again today.

Global passenger traffic continues to grow, led by APAC and the Middle East. In the U.S., domestic traffic declined after slower growth in April, but international traffic performed better, demonstrating the resilience of long-haul demand. This phenomenon of international growth outpacing domestic growth is a trend that we've seen throughout the year and around the world.

On the aircraft side, we continue to see strong demand from our customers, despite the uncertainty regarding tariffs and trade. This is evidenced by our 99% utilization rate and 97% extension rate in the second quarter. These high levels of utilization and extension rates have persisted over recent years, resulting in more options on placements and stronger returns overall.

In fact, across the 30 extensions we completed in Q2, the new leases signed were on average higher than their previous lease despite being older aircraft now. The resilience of international travel means the broad-based demand for wide-bodies continues. This was shown by the lease agreements we signed for 777 and [A330ceo] with carriers in Asia, the Middle East and Europe in Q2.

Furthermore, as a result of the deals we have signed or have in the pipeline in Q3, we have only 2 wide-bodies available for lease between now and the end of 2027 out of a fleet of more than 250 widebodies. On the narrow-body side, we see similar trends. We signed lease agreements with 12 different carriers in the quarter, including 6 A320neo placements from our order book with a carrier in the Middle East.

We extended 26 used aircraft with an average age of 16 years that are on lease to carriers, predominantly in Europe and Asia. There has been a lot of focus on the OEM supply shortages over the last number of years which, of course, have been helpful for lease rates and sales pricing. These delays have also resulted in fewer opportunities for organic growth via sale leasebacks. That dynamic is beginning to change and deals are beginning to present themselves.

Of course, they have to meet our return targets, but I am confident that as OEMs ramp up deliveries over the next few years, AerCap will be well positioned to take advantage of these opportunities given the combined strength of our balance sheet and customer relationships.

Spare engine demand remains particularly robust today, given the challenges with new technology aircraft in particular, keeping utilization levels high. Our engine platforms are focused on supporting their OEM, airline and MRO customers. Spare engine support is a key part of AerCap's overall proposition to customers. And our portfolio of over 1,200 spare engines, 90% of which are new technology, mean AerCap is well positioned to do so.

On new deliveries, our organic growth strategy continues with the purchase of 31 new LEAP engines across the SES and AerCap platforms, taking total deliveries for the year-to-date to 84%. A further 46 LEAPs are expected to deliver through the end of this year. We also delivered 36 engines to various airline customers in Q2 alone under commercial lease agreements. So overall, activity remains robust across the platforms.

Finally, we are set to expand our MRO support capability with an engine leasing partnership with Air France-KLM announced at the Paris Air Show, which we hope to finalize later in the year. This mutually beneficial partnership provides spare engine support for customers of our France-KLM's MRO operation and quicker MRO slots for our own fleet.

Turning to milestone. Overall, the helicopter landscape remains reasonably robust. Global fleet utilization remains high, aided by continued OEM production discipline and supply chain constraints which, like the aircraft industry, are likely to persist for some time.

From an AerCap fleet perspective, we continue to adopt a balanced portfolio management strategy, investing in new technology helicopters at accretive returns, while divesting of midlife and out of production types. During the quarter, we continue to see a high percentage of helicopters of varying types extending with their existing operators. This included deals with operators in the U.S., South Korea, India and the U.K.

So in summary, this was another great quarter for AerCap with earnings and cash flows remaining strong throughout the business. We continue to deploy your capital effectively with the purchase of approximately $3 billion of new equipment and the repurchase of over $1 billion of stock year-to-date.

In addition, we expect to spend another $3 billion in new equipment through the end of 2025 and have a further $800 million in share repurchase authorization outstanding. Going forward, this means that AerCap is in an exceptional position to provide unique support to our customers and strong returns to our shareholders.

With that, I'll now hand the call over to Pete to review the financials and the outlook for 2025.

Thanks, Gus. Good morning, everyone. Our GAAP net income for the second quarter was a record $1.259 billion or $7.09 per share. This included net recoveries related to the Ukraine conflict of $973 million or $5.48 per share. This reflects the award we received in the favorable decision by the London Commercial Corp in June.

The impact of purchase accounting adjustments was $82 million for the quarter or $0.46 per share. The net tax effect of both of these items was $134 million or $0.75 per share. As a result, our adjusted net income for the second quarter was $502 million or $2.83 per share.

Besides the insurance award, there were 2 main items that affected our results for the second quarter. First, we had a tax provision release of $41 million; and second, our SG&A expense was higher than normal due to higher stock-based compensation expense which was driven by some upfront recognition of expenses. Going forward, we expect stock-based compensation expense to return to a more normal run rate of around $30 million a quarter.

Turning to sales. Our net gain on sale of assets was $57 million. We sold 18 of our owned assets during the quarter for total sales revenue of $374 million. That resulted in an unlevered gain on sale margin of 18%, which is equivalent to a multiple of 1.7x book value. The sales volume was a little lower than normal during the second quarter mainly due to timing of deals closing. As of June 30, we had $470 million of assets held for sale, and I currently expect our sales to be around $2.5 billion for the full year.

Our liquidity position continues to be very strong. As of June 30, our total sources of liquidity were approximately $22 billion. That includes $2.7 billion of cash and $12 million of revolvers and other committed facilities as well as expected sales and operating cash flow.

Our sources-to-uses coverage ratio at the end of the quarter was 1.9x, which amounts to excess cash coverage of around $10 billion. Our leverage ratio was 2.2:1, down from 2.4:1 last quarter. That decrease was primarily driven by the favorable insurance judgment that we received in June.

Our operating cash flow was approximately $1.3 billion for the second quarter, and our average cost of debt remained the same at 4.1%.

We bought back 4.7 million shares during the quarter for a total of $445 million. That takes us to over $1 billion of share repurchases so far this year. We currently have around $800 million of available capacity remaining in our existing share repurchase authorization.

Turning now to guidance. In February, we projected adjusted earnings per share of $8.50 to $9.50 for the full year 2025, not including any gains on sale. On our last earnings call, given the strong performance in the first quarter, we raised our guidance to the top half of that range. As Gus mentioned, today, we're raising our full year 2025 adjusted EPS guidance to approximately $11.60. That includes $1.10 of gains on sale that we had in the first half of the year, but it doesn't include any gains on sale for the second half of the year.

In the first half, the outperformance relative to guidance was driven by higher lease revenue, including net maintenance contribution, and we would expect lease revenue to continue to be strong in the second half of the year. We also had some benefits from higher other income in the first quarter as well as the tax release in the second quarter. So that results in full year guidance of $11.60. This reflects our strong performance year-to-date and our positive outlook for the rest of the year.

So in closing, we're coming off another strong quarter for AerCap in terms of earnings and EPS and of course, the favorable decision in our insurance case. We continue to be in a position of strength with a strong balance sheet, low leverage and strong liquidity. We're confident about the outlook for the business, as you can see from our increase in full year guidance and our repurchases of over $1 billion of stock so far this year.

And with that, operator, we'll open up the call for Q&A.

[Operator Instructions]. We will take our first question from Terry Ma with Barclays.

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. You guys continue to be under-levered relative targets. So maybe just talk about deployment of that capital overall.

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.

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.

Got it. That's helpful. And then I guess as a follow-up, I think leasing expenses ex the maintenance amortization expense was in the $60 million range this quarter. It's been kind of below average last 2 quarters? Kind of what's the outlook for that for the remainder of the year?

Yes. So leasing expenses have been lower. They were also lower in the first quarter. They came down a bit more in the second quarter, mainly that has been due to the high level of extensions and fewer transitions that we've been seeing. As you saw, our extension rate in the quarter was 97%. So that's almost a record high. And what the impact of that is it's reducing the amount of leasing expenses that we have. So I think that will continue to trend at lower levels than we had originally expected because of that -- those factors.

Any further questions, Mr. Ma?

No, that's it.

We will take our next question from Moshe Orenbuch with TD Cowen.

Great. I apologize because I missed a bit at the beginning, but the increase in your -- your second half or full year kind of CapEx. Does that already encompass your expectation for potentially higher sale leasebacks? Or is that something that would be kind of additive to it?

No. That $3 billion that we mentioned, Moshe, is just what we've contracted to date. So that's just from the order book. But any -- so any incremental things that we do would be additive to that number.

Got it. And I guess -- I mean, how should we sort of think about the potential for that number to be higher than $3 billion versus kind of lower at this stage, like kind of upside, downside, if you will?

Well, we're starting to see the OEMs pick up their pace of deliveries. I mean you saw Boeing's results the other day. So I think that we are seeing production rates increase, albeit off a relatively low base. So I think as a starting point, that $6 billion for the year is a reasonable one for us just on -- in terms of our order book and what's currently contracted and then things can be additive from there.

And one of the benefits that you get if you're doing sale leasebacks or in particular, engine deals is that allows for more rapid deployment of capital than say, if you were doing an OEM order where you're going to get those -- a new order, you're going to get those aircraft in the 2030s. So that is one of the benefits of those 2. How much will it be this year? Hard to know, but we do have excess capital available, and we would like to deploy it.

Got it. And maybe since you did bring up the engine business, could you talk about how much -- what's the possible amount of capital you could deploy in that over -- I mean, you can kind of pick the period to discuss and just talk about how important that could be for your AerCap?

Well, we did $5 billion of engine orders last year and that's -- and $10 billion since we did the GECAS acquisition, so that gives you some idea of how large these can be. And as I said, in contrast to just an order on an aircraft from an order book, engines can deliver, in some cases, weeks after we've concluded that contract because -- if you think about it, these are spare engines that are immediately needed, that's why they are -- that's why we are doing those purchases so they can be immediately put into the spare engine pool for the OEMs and so that can lead to rapid deployment of capital. So it can be quite large.

We'll take our next question from Catherine O'Brien with Goldman Sachs.

Maybe just a follow-up on the capital allocation question. Leverage is running well below target. It sounds like you have potentially new opportunities in the sale leaseback market. But how do you think about the relative attractiveness of those sale-leaseback opportunities versus maybe deploying more capital engines versus buying back AerCap shares. Is the lack of a re-up on the buyback just that you still have $800 million left? Just would love to know kind of how you're thinking about ranking those opportunities.

Yes. That's the rationale, Catie, for -- in terms of the buyback at the moment. We have a little over $800 million remaining. And so we'd like to utilize that first. So that's why we're not announcing a new authorization at the moment. But as you note, our leverage ratio is low. It's 2.2:1. A lot of that is because the -- we got the judgment in June on our insurance case. And those funds just came in at the end of June and early July. So that decreased the leverage ratio by about 20 basis points from 2.4 to 2.2.

So when we think about the opportunities, for sure, share buybacks are one of them. But we also think between some of these sale-leaseback opportunities with airlines, some of the engine deals that we're considering, I think all of those are in the mix. We'll look at each individually, but I think some combination of those things is the most likely deployment of excess capital this year. I think beyond that, things like M&A and new orders of aircraft are probably behind that at the moment.

Okay. Great. And maybe just for my follow-up, an 18% gain on sale is nearly double your historical average. So definitely not trying to pick at that. But there's been a lot of focus from investors across the aviation industry on what Boeing starting to get their act together in production could mean. And that 18% is a little bit lower than the last couple of quarters. Is there any difference in the types or ages of assets you call at this quarter versus the last 2 or 3? Just trying to see if there's any read-through to demand for aircraft in the secondary market or if this is just really like a normal fluctuation based on the types of assets you sold?

Sure. I really think it's a normal fluctuation...

Catie, I was just going to say there that this is just a normal fluctuation. There's nothing more to see there. In terms of demand, it's still extremely strong. Look, the real evidence of that is the extension rates. You can see that we extended an all-time high of 99% of the aircraft. That's what speaks to the strength in the market, whether Boeing are making 34, 36 or 38 airplanes is not going to affect that demand.

We will take our next question from Ron Epstein with Bank of America.

Yes. Maybe the first one for Pete. When we met up at the airshow, we had a pretty depth discussion with you on tariffs. Given how things have sort of moved around, how are you thinking about it now? And how is the tariff environment kind of impacting the business?

Sure. Thanks, Ron. So we've seen a very limited impact of tariffs on our business so far. As you know, we've been strong advocates for 0 tariff regime around the world. We were very glad to see that to see the announcements between the U.S. and the U.K. and then the U.S. and the EU that came over the weekend. I believe those remove a lot of the uncertainty around tariffs for aviation. So that's very helpful.

And what we'd like to see, I think those are a good precedent for other deals that could be done around the world. So that's very helpful. Look, all that being said, all this has moved very quickly. But if those can serve as a precedent and we get back to the 0 for 0 regime, I think that's best for aviation. It's helpful for the industry overall. And as I said, so we've seen very minimal impact, and we hope that a lot of this is behind us now.

Got it. Got it. And then maybe just a broader question. When you think about the return profile on an engine versus the return profile on an airframe, kind of at a high level, how do you guys think about that? I mean, what's better for you all an airframe or an engine?

Ron, I wouldn't say one is better than the other. There's different aspects to them. The engine initially has a lower lease yield because no one is paying for seats, lavatories, all that biofurnished equipment. However, over time, the aircraft depreciates faster than the engine because you have to depreciate those components that are specific to the first, let's see.

So you get a higher lease rate at the start on aircraft, but you have a shallower depreciation curve over the long term on the engines. The key point of investing in anything in aviation is that you were buying the right assets for its remaining economic life, be that 5 years or 25 years and you're buying it at the right price and you know the value of the assets when you buy it. And AerCap has demonstrated that in this industry for 20-plus years that no one has that judgment better than this company?

Got it. Got it. And then maybe just one last one. With demand for wide-bodies clearly picking up. Do you think you need to -- how do I say, build out your backlog on wide-body orders, your skyline more so?

Definitely not. I will build my skyline when it makes money for my shareholders. I have no interest in buying any asset at all. If it doesn't make adequate return for shareholders in AerCap, I still believe the cheapest widebodies in the world are available on the New York Stock Exchange under the ticker [AER].

We will take our next question from Jamie Baker with JPMorgan.

So Gus, do you think we are at peak returns. And if not, when do we get there? And the reason we're asking is lease rates obviously haven't fully kept up with the cost of debt. And we're starting to wonder whether competing capital maybe one of the reasons could less disciplined capital be chasing deals lower? And look, we're just thinking out loud, but some of the recent deals from United, that was business away from AerCap. So we're just trying to -- we're just wondering what the read-through might be.

Sure, Jamie. I mean, look, I can't speak to anyone else in the industry, but I'll hand it over to Pete in a second, but you can see over a very long period of time that we are -- AerCap is able to pass on the cost of interest. And we've done that for this year as well as you'll see. Interest expense is up 5% and the lease revenue matches it.

But look, from my perspective, I've always said to you, that we target that return of 8% to 10% over the treasury rate and that's what this company has always returned in every -- in all markets, that's what it's averaged in that zone exactly. So this business is extremely stable if you're good at it and you're in it for the long term.

If you're one of the tourists, then you can have -- you can put money to work, whether you'll make any -- whether you be successful at it or not is another matter. We've exhibited great restraint when it comes to deploying capital. And from our perspective, how we allocate capital be it buying our own shares, which, as I just said to Ron, I believe the cheapest aircraft are available every day on the New York Stock Exchange under our ticker. And you won't see us. You're right. Yes, of course, some deals trade away from us, but that's where we exercise discipline. And you've seen us for 20 years through all markets exercise that discipline, and we'll continue to do that.

Okay. I appreciate that. And then maybe for Pete, you're nicely below the 2.7 debt-to-equity target. You touched on that in your prepared remarks. So what's more likely from here, running it back up to the target or maybe tightening that target and pushing for low A ratings?

Yes, Jamie. So I think that we will run it closer to the target. I'd expect it to get up to get closer to 2.7, whether that's 2.4, 2.5, somewhere in that ballpark. We're not intending to lower that target because fundamentally, I think we're in a good place with the rating agencies now. Look, if we can get to A- ratings, that would be great. But ultimately, we're focused on what's the -- what is the most beneficial for our shareholders, how can we return -- create the highest returns for our shareholders.

And so if you think about -- do we -- would we need to do that by lowering the leverage target over a long period and putting in place higher liquidity and other things like that. If there's a cost to that, obviously, I think where we are today, having come up from low BBB- ratings a couple of years ago to where we are today at BBB+ across the board, that's a very strong performance. Sure, we'd like to go higher. But I think fundamentally, there are a lot of opportunities for us to deploy capital, and we'll look to do that.

We will take our next question from Kristine Liwag with Morgan Stanley.

And maybe, Gus, following up on your comments on AerCap's success for the past 20 years, I mean we've seen all the numbers. And at this point, I mean, you are the largest aircraft lessor in the entire world. So congratulations on that success. But I guess when we look for growth and Wall Street is always looking for the incremental growth, as you continue to deliver that strong return and the business continues to delever and we look at your forward order book and purchase and leasebacks, it kind of decelerate starting 2027.

I mean how do we think about the size of AerCap in the next 5 years or even, I mean, 20 years maybe a little too far out, but maybe in the next 3 to 5 years, how big could you be? And are you getting to the point on return that you're too big that getting that outsized 8% to 10% consistently over the treasury rate may be getting harder? And if that's the case, where do you see incremental growth?

Thanks, Kristine. Well, look, from our perspective, this is a growing industry, aviation. Every 20 years, it doubles in size. And aircraft leasing is doubling within that itself. So it's continuing to grow every year. So I'm not worried about growth over the long term, it always comes. And indeed, if you just look at the amount of CapEx we contracted in 2024, it was $6 billion plus that we managed a contract that wasn't there at the beginning of the year.

So I'm not concerned about where the order book is. I'd be extraordinarily concerned if I was ordering airplanes that were going to have a negative effect to my shareholders, and we followed the GAAP model of growth at any price. That's something we'll never do. The objective of this company is to create value for our shareholders. And that means growing profitability. And that does not necessarily mean growing revenue. Of course, we have grown revenue tremendously. We've grown the balance sheet tremendously.

But at the right time, and I'm very confident that given the growth industry, AerCap's position in the industry, the relationships we have, the influence we have that profitable growth opportunities will come our way. And in any event, as I said earlier on in the call twice, I certainly believe that the best value aircraft in the world are available under the ticker AER down on the NYSE.

And maybe, Pete, as a follow-up. Look, we have seen a modest compression in the annualized net spread over the past few years as interest expense has been ticking up. Are there -- with the balance sheet continuing to improve and leverage going down, are there different ways in which you could further reduce cost of interest? And when would you expect the annualized net spread to start expanding again?

Yes. Thanks, Kristine. So the net spread will be expanding. I'd expect it to be going up from here kind of on a sequential level, quarterly and then into the next few years as well because what we're seeing is the portfolio yield, the lease rate factor is going up. That's going to continue to climb.

And so overall, net spread is going to increase. I would remind you though that net spread obviously isn't the whole story. There's a lot beyond net spread, we're not managing to that. We're managing to EPS. But I do think the profitability will increase going forward. And maybe just to touch for a second on Jamie's question before in terms of whether we've reached peak profitability for the industry, I don't think so, in part because even the deals that we're doing today, there is a lag in terms of seeing the financial results come through for those.

So even if you did reach peak profitability in terms of the market being great today, you're not going to see the financial results of those really flow through for the next few -- until the next few years. So I think we've got a good tailwind on that. We've got a good tailwind in terms of COVID leases rolling off. That will take time, but it is a tailwind. So I think there are a number of things that are positive for us as a company going into the next few years.

We will take our next question from Hillary Cacanando with Deutsche Bank.

I know you already wrote down your exposure to Azul late last year, but that was before they filed for bankruptcy. I was just wondering if there could be any other impact from Azul bankruptcy from your end?

Thanks, Hillary. Yes. So last year, you're right, we did take a provision against Azul and as we look out today, Azul is still in bankruptcy, they have been making progress in their restructuring plan. We don't see any impact compared to where we were. So I think minimal impact this quarter from Azul, and we think we're fully provisioned there for how this restructuring should play out.

Okay. And then so far, we saw about 10 very young A320neos getting retired in the market. And parted out to harvest the engines just given the demand for spare engines. I guess that speaks to the strength of the engine market. So I just wanted to get your thoughts on that phenomenon and if that's something that you expect will continue?

Well, there's a couple of items there actually. On those -- the report of those neos being torn down, there are 220 aircraft that were in Egypt. They are being disassembled. The other aircraft, the A320 aircraft that you're speaking about, it's my understanding that it's only the engines that have been removed. The aircraft themselves are not being torn down. And that is in order for Pratt & Whitney to support the obligations it has to its customers. So that's not happening as far as I'm aware, on A320neo, the teardowns, it is only happening on the 220s that were in Egypt.

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

Maybe just one more on the sale-leaseback opportunity. Are these more opportunistic from distressed airlines? Or is this just a function of more deliveries, driving less competition per RFP? Just was curious, as I know that market has been pretty competitive and not very attractive the last couple of years. Just wondering what's driving the shift.

Well, Catherine, first of all, we have to execute on them. Now we have done so over the years. And you can see that indeed last year with the amount of CapEx we put on the books that was not there at the beginning of the year. It's highly unlikely we're going to be competing in open bid sale-leaseback transaction.

It's where we bring other things to the table in terms of our installed fleet, our engine business, et cetera. There are different things we bring to the table that others don't. So I can't say that every deal is uniquely bilateral, but we certainly wouldn't be entering into many sale-leaseback transactions. I don't think we have, whether there's just open bids or everybody is bidding against us.

There are no further questions at this time. Mr. Kelly, at this time, I will turn the conference back to you for any additional or closing remarks.

Thank you very much, everyone, for joining us for the call, and we look forward to speaking to you during the quarter. Enjoy the rest of the summer. Goodbye.

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