AerCap Holdings NV (AER) 2021 Q3 法說會逐字稿

Good day, and welcome to the AerCap Holdings N.V. Third Quarter 2021 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 2021 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 earning release dated November 10, 2021. 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 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.

Good morning, everyone, and thank you for joining us for our third quarter 2021 earnings call. I am pleased to report a strong quarter of earnings, with $434 million of net income or $3.35 of earnings per share. Importantly, the positive trends we observed to the last several quarters relating to operating cash flows, deferral balances, accounts receivable balances and improving demand for aircraft continued in the third quarter. This positive trend are underpinned by the strong recover in global air travel. More and more countries are opening their borders to international travel, driven by the huge success of the vaccination program and the subsequent easing of government restrictions.

As you will see from the slide, the 3 key markets of the world are the United States, Europe and China, which today contributes 50% more flights each day than the rest of the world combined. Since the GECAS announcement in March, travel has rebounded by 38% in this 3 markets and by 26% in the rest of the world. This is well ahead of our expectations at the time and also shows the potential for further progress in 2022.

In the U.S. we saw a strong rebound beginning in January and this continued through most of the summer with domestic leisure traffic close to 2019 levels. Although, there was some temporary softness in traffic in August and September as a result of the Delta variant most of the U.S. majors that have recently reported, highlighted improving booking trends moving into the fourth quarter.

In addition, the reopening of the U.S. international market earlier this week should provide a significant boost to long haul travel demand. It was encouraging to hear from the airlines that booking surged in the days and weeks following the announcement, a clear sign of a pent-up demand that exists.

The transatlantic market is the most important long haul market for both business and leisure, providing healthy yields for airlines and strong demand for wide-body aircraft. The successful reopening of the North Atlantic market will give other airlines and airport operators around the world the confidence to follow. While it's too early to say how quickly business demand will return this is a critical first step.

In Europe, the strong recovery has been sustained by the success of the vaccine rollout and the digital COVID certificates which has made international travel much easier for airlines, airport operators and travelers. China is the most important market in Asia and has also fared well with high level of domestic demand.

Although, there have been period of turbulence due to regional outbreaks and increased travel restrictions, these have been transient in nature and demand for air travel has bounced back each time, proving the resilience of the Chinese domestic market. As a group these 3 markets are back to 85% of total flights relative to 2019 levels.

In the rest of the world, South America and India has shown recent signs of improvement. But the one region that has been harder hit is Southeast Asia. Even there though, we have seen countries like Thailand and Malaysia pivot towards a living with COVID approach, which coupled with continued rollout of the vaccine should also spur recovery in this region.

Likewise, Australia which has had one of the strictest quarantine requirement in place since the pandemic began, has started to reopen international travel. Whilst the full reopening of Australia will take some time, we have already seen evidence of a number of carriers starting to rebuild their domestic networks in advance of greater inbound travel.

As an example, Qantas combined with Jetstar was operating one return flight per day between Sydney and Melbourne. They moved to 18 return flights the day after the state border opened and expect to operate 37 by Christmas. This is still well below the 58 per day that was seen pre-pandemic, but a significant step forward nonetheless.

Turning to GECAS, we were delighted to announce the closing of the transaction following an extremely successful bond offering and the receipts of all regulatory approvals. And although we only closed the deal last week, there are number of areas I would like to highlight that have pleasantly surprised me.

AerCap has always had a high degree of communication with its customers. But the level of communication and the substance of this communication has intensified materially. AerCap is the most important lessor in the world and simply reaches a much wider base of customers from legacy carriers, LCCs, regional carriers, helicopter operators, freighter operators, wet lessors and engine leasing customers.

Engine leasing, in particular, provides a new lens into the market. This business runs a much shorter lead times than aircraft leasing, as new business deals are done weeks in advance rather than months and years in advance on the aircraft side. This gives us an important window into the thought process of an airline and their confidence in a recovery, if we can see they are prepared to invest large amounts of capital in putting their engines through shop visits and leasing from us to cater for them. The same is true of our interactions with the OEMs, as we are by far the largest owner of commercial aircraft in the world and their biggest customer.

I am pleased to see the level of cash we are collecting every day from our customers too. And whilst we are not out of the woods yet when it comes to COVID, I do believe that with further progress on vaccinations, the new treatments announced last week, the transatlantic market reopening, and a pathway out of this in Asia, that it's only a matter of time before the market fully recovers.

Now not only does this transaction provide us as an extremely attractive portfolio of customers, just as importantly, we also gained a group of highly talented colleagues across a variety of functions who will challenge and enhance the AerCap team to ensure we remain the industry leader. It is clear from the level of lease placements, aircraft sales and purchases of both companies that we have the right people and the right products to position AerCap well for the future.

Having the right product available to your customers is crucial. And this is why AerCap's fleet will be comprised of 75% new technology aircraft by 2024. These new technology assets, such as the A320neo and the 737 MAX are the most in-demand aircraft in the world, reducing airlines' operating costs and carbon emissions and helping them to meet their sustainability commitments. Having the most desirable portfolio of assets will ensure that AerCap maintains its global customer footprint and franchise.

So in summary, this quarter was an important inflection point for the company. As our strong results demonstrate, AerCap continues to recover from the effects of the COVID-19 pandemic. The GECAS transaction has a portfolio of well-priced assets and a deeply experienced team of people that will further enhance AerCap's position as the lessor of choice for airlines around the world.

With that, I will hand the call over to Pete for a detailed review of our financial performance.

Thanks, Gus. Good morning, everyone. Our total revenues for the third quarter were $1.454 billion, an increase of 42% from $1.027 billion for the third quarter of 2020. Basic lease rents were lower in the third quarter, primarily due to lease restructurings, aircraft transitions and the impact of airline bankruptcies. This includes the impact of cash accounting, which was $75 million for the quarter.

With the recovery in air travel progressing and after a stronger summer, most airlines are in a significantly better financial position today, and we could see this in our third quarter numbers. Our cash collection rate was 99% for the third quarter, our deferral balance decreased by $36 million to $427 million, and our trade receivables fell by almost half to $80 million as of September 30. So on a combined basis, deferral balances and trade receivables fell by 17% in the third quarter, which leaves us in a good position as we approach the winter months.

Maintenance rents were $110 million in the third quarter, which was an increase from a $91 million in 2020, primarily due to higher maintenance revenue recognized as a result of these terminations.

In terms of aircraft sales, during the third quarter, we sold 11 of our owned aircraft for a total of $101 million. The aircraft we sold were an average of 20 years old, and our net gain on sales for the quarter was $38 million.

Other income was $459 million for the third quarter, the vast majority of which was the sale of most of our remaining unsecured claims with LATAM Airlines. We recognized $409 million of other income in the third quarter related to the LATAM claims sale. We received the cash proceeds in early October, so those did not contribute to operating cash flow for the third quarter but will instead come through in the fourth quarter.

Turning now to expenses. Our total expenses were $955 million for the third quarter, a decrease from $1.851 billion for the third quarter of 2020. The main reason for the decrease was the lower level of impairments this year. We recorded asset impairments of $49 million in the third quarter, which related to lease terminations and were largely offset by maintenance revenue.

Our depreciation and amortization expense was $393 million for the third quarter, a decrease from $416 million last year, primarily due to a lower lease assets balance. Interest expense was $287 million for the quarter, down from $307 million last year, mainly due to a lower debt balance. Loss on debt extinguishment was $3 million in the third quarter compared to $43 million last year when we completed a debt tender and prepayment of a large amount of bonds.

Other leasing expenses were $54 million for the third quarter, an increase from $40 million in 2020, and the increase was mainly due to higher default and restructuring-related costs during the quarter. Our SG&A expenses were $68 million for the quarter compared to $61 million for the third quarter of 2020.

And finally, in the third quarter, we recognized expenses of a $101 million related to the GECAS transaction. This primarily represents the cost of the bridge financing facility that we put in place back in March, which was terminated when we closed the transaction.

So, overall, in the third quarter, AerCap generated net income of $434 million or $3.35 a share. Excluding the costs related to the GECAS transaction of a $101 million pretax or $88 million after tax, net income for the third quarter was $522 million or $4.04 per share.

We continue to maintain a strong liquidity position. Pro forma for the GECAS transaction, our total sources of liquidity were around $18 billion, which results in next 12 months sources to usage ratio of 2.1x. That's well above our current target of 1.5x. Our excess cash coverage also remained high at around $9 billion.

As I mentioned earlier, our cash collections continue to be strong at around 99%, and our operating cash flow was $788 million for the third quarter.

We continue to maintain a very strong balance sheet. Our leverage ratio on a standalone basis at the end of the quarter was 2.3 to 1, which means that pro forma for the GECAS transaction, our leverage ratio was 2.8 to 1. That puts us well on our way to get back down to our target ratio of 2.7 to 1 in 2022.

Our secured debt percentage decreased as a result of the recent financing we did, which was predominantly unsecured. So on a pro forma basis, as of September 30, our secured debt was around 16% of our total assets.

So overall, we had a positive quarter with net income of $434 million and EPS of $3.35. We saw improvements in cash collections, leading to a significant reduction in our deferrals and trade receivables balances. We had very strong demand for our recent financings and both our $21 billion unsecured bond offering and our $2 billion secured term loan were heavily oversubscribed, which demonstrates the market's confidence in AerCap as well as the sector generally. And, of course, the interest cost of around 2.6% for an average tenor of just over 7 years on those financings, positions us well with the lower cost of debt going forward.

Now with the GECAS transaction closed, we look forward to completing the integration of our 2 companies and continuing to deliver for our customers and our investors.

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

(Operator Instructions)

We will now take our first question from Andrew Lobbenberg from HSBC.

Can you talk a little bit about when we might see lease rates climbing? Looks to me that they were sort of flattish year-on-year. But, obviously, we've still got the transitions going on. But equally, once the transitions go on, I think through this winter, we're going to have quite a lot of power-by-the-hour. So, yes, when should we expect or how vigorously should we expect lease rates to decline?

Let me start on that one and then Pete can comment on the power-by-hour the arrangements during the winter. I think it's fair to say that we are seeing upward movement in lease rates in certain aircraft types already. And the recovery in lease rates is being led by the new technology narrow-body assets.

On the A321neo, in particular, we never really fell that much, and we're certainly seeing upward movement there. We are seeing the MAX 8. We're seeing good movement on the MAX 8 actually as well. It's now trending near where an A320neo would trend as well for future placements. So we're certainly seeing that. And then on aircraft values, we're seeing the upward movement there in values of aircraft, as evidenced by the sales that we've been executing. You can see some of the gain on sale in this quarter's earnings. Pete, would you like to comment on that -- the near-term impact of the power of the hour?

Sure, Andrew. So as we look at basic lease rents and our lease yields, really, the factor that has been affecting those has been just the number of aircraft that are in transition, that are waiting to be delivered to new lessees, right? And so as -- really, that's the biggest factor. As those aircraft get delivered, then we will start to see them earning revenue again. And that's really something that's going to happen over the next couple of quarters. We will see the vast majority of those being delivered. For example, the A350s that we took out of LATAM and put into Delta. Once those aircraft deliver, then the revenues start again. So that's one of the biggest drivers that you'll see there. You will also see from the perspective of airlines coming off of cash accounting. So as airlines come off of cash accounting, that will also impact that line because it will go into revenues.

As it relates to the PBH rents, what we will see is over the next, call it, few quarters, those PBH rents, you will see airlines coming off of those arrangements because really, they were put on them at the start of the leases. So you have a PBH period and then switching to normal monthly rentals -- fixed rentals. And so that's really going to happen kind of in early 2022. You'll be seeing that for the most part. And I would say, in general, if you look at revenues generally, I think this quarter is the low for us, and we should see them picking up from here on out.

We will now take our next question from Mark DeVries from Barclays.

I appreciate there's probably a lot of work still going on evaluating the plans you acquired, but any sense for when we'll get some clarity on some of the pro forma accounting impacts of the deal, whether it's the maintenance rights, asset or how much you collected from the cash light box?

Sure, Mark. So yes, you're right. I mean, it will be a big exercise to go through the legacy GECAS fleet, we will do that on an asset-by-asset basis. So we look at every asset, every liability on their balance sheet and assess what we think is the future for that, what lease rates we're going to get, what maintenance revenues are we going at, what expenses are we going to have, et cetera. So that is a big project that we've just undertaken. And really, once we have done that -- and also, once -- now that we are able to operate the teams together and having the leasing executives meeting freely, the portfolio management people meeting, now we can really take a view as to what we plan to do strategically with all of these aircraft. And so all of that is going to inform the judgments that we make there.

And basically, when we report fourth quarter results, you'll see that -- so you will see that pro forma balance sheet in there. You'll be able to see all of those assets laid out. And at that point, there will just be much more information that we can give you on what the combined committee will look like and what it will produce.

And then just one clarifying question. For the pro forma equity in the press release, is that for your stock price as of 9/30? And would the debt-to-equity and the implied price to -- or book value per share be higher -- or I'm sorry, the equity be higher if you marked it for where the stock was on the day of close.

So that was based on the stock price as of -- well, the Friday before closing, so on October 29, which was -- it closed at $59.04 on that date. And so that's what you based it on because it -- when you account for those shares, you just multiply the number of shares, 111.5 million times $59.04. So that number won't change. And really, it's just driven by where the stock happen to be on that date.

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

A follow-up on the first question about aircraft values. So, Mark and I noticed that the weaker aircraft types, 330s, 777-300ERs, the value ascribed to those types was lower than what we think some investors might have been expecting. Did you have any wiggle room to allocate GECAS aircraft value in a way that would minimize the risk of downgrades? Could you just remind us of any rules around that?

Well, let me just start off with the strategy, though. And first of all, Mark, the key thing about the portfolio we bought with GECAS is that, and I said this so many times, the age of the portfolio is not a metric of risk. If you have young 777s, the young A330s, you have significant risk profiles. GECAS and AerCap, the 2 biggest players in the market, 2 biggest buyers and sellers of airplane in the world had the same strategy, do not buy any end of life 330s, 777s. And so neither one of us was involved in that growth at any price model that some of our competitors engaged in over the last 7 or 8 years. We haven't ordered 777s or 330s since -- that's over 11 years ago.

So the issue that you're referring to is much more acute for those who have young assets in those asset classes. Furthermore, the balance sheet of GECAS was not built by buying overpriced M&A transactions. So you're not allocating purchase price premiums. In fact, even on closing, even after a $1.5 billion run-up from when we signed the transaction with GECAS in March to closing, the discount is still $3.5 billion that we're getting off the GECAS balance sheet. That's after -- almost $1.5 billion run-up in the stock.

So to the extent -- first of all, the most important thing with the strategy was rise in both companies about how we put the portfolio together. Secondly, the GECAS book wasn't built by paying over the odds for assets. And then thirdly, of course, we're getting a very significant discount here. So to the extent we want to take something off those assets, we will reflect the true market value.

And while I have you, I mean, the asset sale market is very strong at the moment. We had one of your competitors CEOs tell us that he could sell anything that he wants right now. Just wondering if you agree with that assessment and how aggressive you might be in culling the pro forma portfolio going forward?

Well, I don't have to describe the comment too, but of course, you could sell anything for a dollar, I suppose. I'm not entirely certain that that's the case just yet. I mean, look, what I would say is this, as in prior downturns, we're seeing the recovery led by the same assets. So without question, A320neo aircraft values, well, they never really got hit that hard to be fair, and the lease rates have ticked up on those. The MAX 8 is making a comeback. That's important. It's important for competition with Airbus too actually. That it's not just an Airbus market. The MAX 8 is coming back. That's good news.

And then we certainly see it on 320, 737s, we see it on 787s at the moment as well. So it's coming. And I do think that we have seen a significant increase in asset values from the beginning of this year. That's not in doubt. And we see that in the sales prices that we're getting for our airplanes. So yes, I mean, I would agree with the sentiment of whichever one of my peers said that, but it's slightly more nuanced.

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

So I know the AerCap delivery book is sold out through 2022. I'm guessing GECAS' legacy order book is probably similarly positioned, but correct me if I'm wrong. Can you just speak to like how quickly you can start marketing both fleets jointly? And can you walk us through any pluses or minuses you're thinking through to marketing a larger combined order book?

Well, first of all, yes, the GECAS fleet is similarly placed, and the vast, vast majority of the 2 order books actually through the end of '23 are placed. And when it comes to -- we, of course, as of the day of closing, we've been preparing for that and are confident for the last 6 months to hit the ground running, and a lot of work has gone into that. Of course, we were never able to, up until the day of closing, in any way, shape or form coordinate any campaigns. But we've done this before 7 years ago. And so -- so far, we're albeit 10 days in, the coordination has been very good on marketing the combined fleet.

And then maybe just one for Pete, not being there picky, and it was strong quarter, but your cash accounting increased a little bit from last quarter. What drove that? And then just any updates on when you think that unwinds completely? I know you were talking about earlier that you expect 3Q to probably be the bottom. Safe to assume that probably goes for cash accounting as well?

Sure. So the second quarter number was $54 million for cash accounting. And as I mentioned at the time on our last earnings call, that was impacted by some onetime items, which made it kind of artificially low relative to what we would have expected. And so we went from a $100 million during the first quarter to $54 million to $75 million, and I think that number is going to come down from here on out.

So the trend, absent that onetime aspect of it, the trend is going down. I mean, one of the big items on that would have been LATAM, right? And LATAM is back on accrual accounting now, now that we've restructured the deals with LATAM and the aircraft that are in there and so that would be a big driver of bringing that down.

We will now take our next message from Hillary Cacanando from Deutsche Bank.

So with the GECAS acquisition now closed, and I know you'll be focused on successfully integrating the new operation. And you want to bring our pro forma leverage down to 2.7x, could you just provide a little more color around how that will be done? Will you be selling assets, raising equity capital and how you envision your longer-term capital structure to look like?

Sure. Thanks, Hillary. So the primary driver of it will just be our organic cash generation and equity generation. So that on its own would bring us down to that level and below that level. I mean we're starting off at 2.8 to 1, so we're pretty close to it now. That gives us a very good start towards that 2.7 target. But that's the main driver. And then beyond that, asset sales also contribute. The more assets that you sell, you can bring that number down faster, right, or by more. But no, I mean, we're not planning to raise any equity.

And then one of your competitors last week talked about production delays at Boeing and Airbus, having an impact on their delivery schedule. Are you having -- are you having like the same type of issues with the OEMs in terms of delivery? If you could kind of talk about what you're seeing there?

Sure. I mean, that's a global phenomenon at the moment. And certainly, the Boeing issues are well documented with the issues that are currently on the MAX and the 787 line. However, that being said, I would expect Boeing to come through this. It's a very difficult time, but I believe those deliveries will ramp up again as we get into next year. It will take a bit of time. Mind you has the largest owner of commercial airplanes in the world and someone who's a marginal supplier of capacity, that's not entirely a negative thing for us anyway. But needless to say, we're in discussion with the manufacturers, and all of them every day are as we are the biggest owner and buyer of commercial airplanes in the world.

We will now take our next question from Helane Becker from Cowen.

Just two questions. Pete, on the $101 million that you sold those 11 aircraft for and the $38 million net gain, had those aircraft been previously written down?

Yes, Helane, most of those aircraft, if I look across the 11 aircraft, they were an average age of about 20 years old and some of them were -- obviously, were older than that, if that's the average. And so, we -- they had been written down by a fair amount over time. I mean, some of that was old, 767s, for instance. And so there is very little value left associated with them and so we wrote them down. We -- through normal depreciation over the years.

And then I think you have an order book of about 450 aircraft now combined. Did you say this, and I just missed it, and I apologize if you did. Are you going to look and talk to the OEMs about potentially restructuring that order book or beyond 2024 since you're mostly placed through year-end 2023? Or are you just going to go ahead and combine them and hope for the best, so to speak?

Well, it is just one order book now, Helane, and both companies were very proficient in leasing the aircraft on the backlog. And so the placement strategy that both companies had was very similar. And as I said before, over the years, GECAS has been a very experienced and disciplined buyer of assets. And as I mentioned as well, the GECAS balance sheet wasn't built by overpaying for assets either through M&A or buying end-of-line assets. So we feel that the order book that GECAS has is well priced.

We will now take our next question from Moshe Orenbuch from Credit Suisse.

I guess you had mentioned that aircraft values have improved, and I'm just wondering if there's a -- put a finer kind of point on the improvement that you've seen since you negotiated the transaction in terms of values? And maybe if you could also relate to that, the level of interest costs based upon the fundings that you did compared to what you had assumed at the time you negotiated the transaction.

Well, I know, it's very hard to put fine points upon it. But I would just say directionally, as I said, we're certainly seeing, led by new technology, narrow-bodies, they are up and we're seeing a significant increase in the value of 737s. We had a package of 737-800s that were 2013 build assets, that we had -- we had signed a letter of intent to sell at the beginning of the pandemic in March of 2020. The buyer of those assets pull back, walked away. We have since sold those assets. And we sold those airplanes -- or contracted to sell them at a higher number than what was the case pre-pandemic, that's after adjusting for the profitability we made by holding the assets through the -- the earnings we made on the asset, but overall, a higher price. So I would say that, that's the case, and then we see it coming back on the new technology, wide-bodies as well.

As I referenced earlier on the -- on the 777s, the 330s, the real issues where people have there will be those who are young variants who've been buying airplanes over the last 7 or 8 years of that variant, we haven't done that neither as GECAS. And indeed, one of the other attractive aspects of GECAS is, GECAS is the leading freighter business in the world, and AerCap is now the leading freight lessor in the world. We're not talking about doing things. We are the leader. We are the leader on the 737-800 freighter program. We are the leader on the 777 freighter program. In fact, we're an industrial partner on it with IAI, not just customer of it. And so that's how I see the market at the moment.

And just as a follow-up, I mean, maybe to reverse an earlier question that, clearly, you're going to reach your desired capital level fairly soon. And it does seem likely that deliveries are going to be slower than whatever has been anticipated. So, I guess -- and the sales market is likely to be potentially on the stronger side. So can you talk a little bit about how you think about the deployment of your excess capital as you are likely to generate it over the coming couple of quarters?

Sure, Moshe. I mean, look, I think if you look at our track record there, we've been very disciplined stewards of the capital and always put the excess capital to work in the best interest of the stakeholders of the business and you can assume that we'll do the same again. But we started off, as Pete said, in a good place in the debt equity ratio.

We will now take our next caller, Ross Harvey from Davy.

So my question is just kind of reverting back to the aircraft sales. I'm just wondering from a modeling perspective, conditional, obviously, on a lot of the analysis that you're doing on the assets at the moment, but what should we generally expect for the next couple of years? I know as a placeholder it would have been a $1 billion before, should we pro forma that to something like $2 billion? And you might comment, if you can, on the secondary market conditions and things like engines and helicopters and freighter aircraft, just compare to a degree that you can, how quickly you can sell assets into those markets and what the liquidity is like?

Sure, Ross. So on the total sales volume, I think that's a reasonable way to look at it. I mean, if you look at what the companies were doing on a combined basis before, it's up to $4 million to $5 million a year. I wouldn't assume that we could get to that level next year. And as you mentioned, historically, we have kind of guided people to around $1 billion a year, so I think that's -- $2 billion seems like a reasonable number. Obviously, that's going to depend on the market in terms of what we achieve. And obviously, also our review of the assets and decisions about which assets do we want to sell.

And maybe just to comment on some of those other types that you mentioned. I mean, I would say, as a general matter, on the helicopter side, I don't expect -- I mean, look, helicopters are about 5% of the total assets and so I wouldn't be expecting large numbers coming out of helicopters. I don't know if Gus on the engine side, any comments you want to make there?

No. I think, similarly, no, the engine business, I said, is less than 10% of the total assets also. So it will be driven by the fixed-wing side of the business on the sales programs.

And just a follow-up then in terms of the integration. I'm just wondering have you got a time line in mind when you'll consider the 2 businesses, sufficiently integrated. And one of the figures that we gave earlier this year was $150 million of SG&A synergies. I'm just wondering, does that remain the case or you stick with that number?

Sure. So look, obviously, we're working hard to integrate the businesses. We're meeting every day, getting the teams together, and that's gone very well so far. But it will be a process that takes -- that will take several quarters. As I look out at that $150 million target, I think that is still a good target and I would look towards the latter part of next year. So by the fourth quarter of next year, we would expect to have gotten all of the benefits through on a run rate basis, so that you could say that's the -- that's kind of a run rate SG&A relative to that target.

We will now take our next question from Ronald Epstein from Bank of America.

I got couple of quick questions for you. Aengus, what are your thoughts on the A320? It's my understanding the Airbus is pushing that hard into the leasing community right now. Just what thoughts do you have on that asset?

The A320 or 220?

A220s, yes.

A220. Look, I mean, it's a good airplane. I don't -- like, the heart of the market is it always going to be the bigger variant, which is the 160 to 200 -- well, 220 seat market now. That's where the heart of the narrow-body is. That will be an airplane to supplement the existing choices that airlines make, but it will not be the driver of an airline's fleet decision, unlike the NEO or the MAX would be. But certainly, it seems to be gaining good traction at the moment. There's no doubt about that.

And then maybe a follow-on. Do you think Boeing needs to do a longer-range aircraft that's got the capacity of the narrow-body, be it a bigger narrow-body, a small wide-body or something, but something that could effectively compete in the market where the 757 sits today or maybe something that's little more capable in the 75, but not kind of ultra-long haul? Do you think they need to do an airplane there?

Yes, I suppose I would answer that in 2 phases. The first thing is, they have to start building what's in their backlog today. They have to start getting 737 and 787s out the door. That is absolute priority. That's the cash cow for any future development of the business. Do I think that they could do with something that could fly up a little bit longer? Perhaps. But I think it -- once again, the heart of the market is in that 160 to 220 seats. Short-haul drives the global air traffic market. And short-haul operations, you're generally doing 2.5 hours. So people should never get carried away by these marquee routes flying from Eastern United States to Western Europe. That's fine, but it's a niche in the global market. The market is not -- that's not the market for narrow-bodies. The market for narrow-bodies is still 2.5 hour missions, carrying as many people as you can as efficiently as you possibly can. And that is the heart of the market, and that ain't going to change.

Now that's not to say that you may want some airplane to top and tail that. We mentioned the 220 is a very good tail for that market. It's got very good acceptance, particularly with the Airbus horsepower behind it now as opposed to Bombardier's horsepower. And then on the bigger end of the market, yes, sure. I mean, Airbus definitely have a slight advantage there. And with the Boeing want to do something there, they may. But the that market, all you have to do is look at public available information, where do -- what do most airplanes fly. And the vast majority of airplanes are flying 2-2.5 hour missions, and that's the short-haul market.

And then maybe just one last one. What's the issue with getting MAXs about the door? I mean, we -- I think we all understand the 787s and the issues going on with the FAA. But the 73 MAX has just been trickling out. I mean, I don't know if they're sharing anything with you on that. But, I mean, what they've shared with the broader community has been pretty spare, to be honest.

Yes. And I mean, look, I -- as far as I'm concerned, we're not building these aircraft Boeing are, but they just need to start getting these airplanes out faster and whatever takes, that's the cash flow of the business.

We will now take our next question from Vincent Caintic from Stephens.

So first, congratulations on the close of the acquisition. I think you -- so on the call, you've given some details like the SG&A savings and also maybe what we should think for aircraft sales. But maybe if there's any kind of broader guidance or help you could provide for us when we think about the combined GECAS-AerCap entity, say, for 2022 when we think about ongoing EPS and book value?

Yes. So Vincent, as I mentioned before, I really think that for us, right now, we're focused on, as I said, assessing the portfolio, doing the whole price allocation process that I mentioned, and looking at what we're going to do for each asset in that fleet. And really, once we've done all of that, that's when we can provide more information to you. So I'd expect that to be when we report fourth quarter results.

And the second question. So it was a nice gain on sale this quarter. And broadly, I was wondering if you could talk about your ongoing strategy when you think about aircraft sales and what you sell. And particularly with your combined entity, you talked about the value of the GECAS portfolio, on the recovery of aircraft value. So when you think about the $34 billion, $35 billion fair value of that acquisition, yet the strong gains you're getting. Just sort of wondering if you could talk about the overall strategy when you think of sales?

I mean the strategy regarding asset sales won't change. I mean we were targeting aircraft that were on the older end, a mix of wide and narrow-bodies. And the objective of our portfolio management and our sales is to improve the residual value of the portfolio. There's no point me going out there selling apprised assets and booking a gain on sale for $10 million, but given away, in essence, $15 million of income with a good credit on a good airplane. That's not the way to run these businesses, and we haven't done that. And so the strategy will be the same as it has been in the past, which is when we do an asset sale, the residual portfolio should be relatively better without those assets in it. And then, of course, we'll drive and maximize price as much as we can.

There are currently no more questions in the queue. I will turn the call back to your host.

Thank you all very much for joining us for the call. We look forward to talking to you in 3 months' time, if not before.

Ladies and gentlemen, that will conclude today's conference. You may now all disconnect.