AerCap Holdings NV (AER) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Genesis Lease fourth quarter and year-end 2009 earnings conference call. At this time, all participants are in a listen-only mode. Later we'll conduct the question-and-answer session and instructions will follow at that time.

(Operator instructions) As a reminder this conference call is being recorded. I would now like to introduce your host for today's conference, Jeffrey Goldberger of KCSA Strategic Communications. You may begin.

Thank you, Giovanni. Good morning everyone. Again, my name is Jeffrey Goldberger and I am with KCSA Strategic Communications, Investor Relations counsel to Genesis Lease.

The Company's fourth quarter and year-end earnings release was issued this morning and is posted on the -- its corporate website at www.genesislease.com. Representing the Company today are John McMahon, Chief Executive Officer, and Alan Jenkins, Chief Financial Officer.

Before I turn the call over to John for his opening remarks, allow me to read the following Safe Harbor statement. This conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as expects, intends, anticipates, plans, believes, peaks, estimates, or words similar in meaning, including, but not limited to statements regarding the outlook for the Company's future business and financial performance.

Forward-looking statements are based on management's current expectations and assumptions, which are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to various factors that are summarized in the earnings release, and are described more fully from time to time in the Company's filings with the SEC. We refer you to those sources for additional information.

Genesis Lease expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change of its views, expectations or otherwise.

This call is the property of Genesis Lease Limited. Any distribution, transmission, broadcast, or rebroadcast of this call in any form without the express written consent of the Company is prohibited.

59 p.m. Eastern time. For access to the replay, call 800-642-1687 in the United States and Canada, or internationally at 706-645-9291 and enter the confirmation code 55211403. The webcast will be archived on Company's website up to the completion of the proposed merger transaction with AerCap.

Before I turn the call over to management, I would remind you that -- everyone that a slide presentation accompanies this call and can be accessed on the Genesis' website under the link -- Events link as found in the Investor Relations tab.

With that said, it's my pleasure to turn the call over to John McMahon. John, it's all yours.

Thank you, Jeffrey, and welcome everyone to our fourth quarter and year-end 2009 earnings call. Beginning with slide six, we follow the same format we used during the -- our Q3 earnings call in order to provide an update to our proposed merger with AerCap.

I will then turn the call over to Alan, who will provide a review of our Q4 and year-end 2009 results and key financial metrics, and then as usual we'll open the call to questions.

As announced on September 18, 2009, Genesis and AerCap agreed to merge in an all share-for-share transaction. Since the announcement, we have successfully progressed towards this goal, securing all of the necessary regulatory approvals and completing a review of the proxy statement by the SEC, which culminates in the February 8 distribution of proxy materials to Genesis shareholders in advance of the special general meeting to vote on the transaction scheduled for March 23, 2010.

The transaction is then expected to close on March 25th. The proposed transaction will create the world's leading independent aircraft leasing company, which the Company's board and management team believe will significantly improve both the immediate long-term outlook for Genesis Lease shareholders.

The combined Company will be well-positioned to deliver significant future earnings growth for our shareholders who will own approximately 29% of the combined Company.

Turning to slide seven, we believe that the combined Company can more effectively compete in the competitive global aviation leasing market than either of the companies could separately. The unique combination of Genesis portfolio of high-quality aircraft and solid cash flows, and AerCap's portfolio of similarly attractive aircraft and contracted forward order book, substantially all of which is debt financing and confirmed lease commitments in place will result in a powerful operating platform that should continue to deliver attractive earnings and growth over the coming years.

As you can see on slide eight, the combined Company will have approximately $8 billion of total assets, an enterprise value of over $6 billion, and a contracted order book of approximately $4 billion.

The combined Company will also have access to Genesis' strong unrestricted cash-generating capability. At the moment, our unrestricted cash balance stands at over $100 million compared to $86 million at the end of 2009.

We also expect the combined Company to experience significant cost savings to the order of $10 million annually. The combined Company will have a growing globally diversified portfolio of 345 aircraft and 114 customer relationships. Shareholders should also benefit from increased market liquidity for their shareholding.

To conclude, on slide nine, we firmly believe that this transaction is in the best interest of all Genesis shareholders, who will benefit from the enhanced earnings and business growth of the world's leading independent aircraft leasing company.

We urge all shareholders to review the proxy materials and to vote your shares in favor of the proposed transaction. If you have any questions, we advise you to contact Innisfree M&A, our proxy solicitation firm who will be happy to answer your questions and to help you vote your shares. They can be reached at 877-687-1871 for U.S. and Canadian investors, and at country code 1, 412-232-3565 for international investors.

With that let me hand over to Alan for details of our financial results.

Thanks John. Looking at slide 11, our rental and total revenues increased during 2009, and we recorded net income of $20 million and earnings per share of $0.58 for the year. As explained in our press release, our results for 2009 were impacted by two significant items associated with recent strategic actions.

A charge of $3.7 million related to transaction costs incurred with respect to the proposed merger with AerCap and a non-cash charge of $7.7 million related to the accelerated amortization of deferred financing costs, following the position to reduce the capacity of our revolving credit facility. Adjusting for those two items, net income, and earnings per share for the year would have been $30.3 million and $0.88 per share respectively.

In summary, through the very challenging operating environment 2009, our business continued to deliver strong cash flows and profitability.

As you can see on slide 12, rental revenues increased by 19% to $62.4 million during the fourth quarter, and by 1.7% to $219.7 million for the full year.

The increase in the fourth quarter primarily relates to the receipt of payments under a negotiated early termination of one aircraft lease, and also a decrease in the number of non-revenue generating aircraft. Utilization rate in the quarter was 99% compared to 91.6% in Q4 of 2008.

The annual rental revenues were also impacted by the early lease termination, along with the acquisition of aircraft in 2008-2009, offset by other lease and rental adjustments.

Slide 13 shows total revenues increased by 1.8% to $228 million, and also included a gain on the sale of one older, non-core asset during the fourth quarter of 2009.

As previously announced, we sold a Boeing 767-200 cargo aircraft in the quarter, and as part of the same transaction we also agreed to the early lease termination of our second 767 cargo aircraft.

As described on the previous slide, the early termination on the second aircraft clearly impacted our revenue, our rental revenues for the quarter. This early termination then triggered an impairment charge of $7.5 million as we reclassified the aircraft on our balance sheet as held for sale at its estimated fair value. However, overall the net income impact was effectively neutral for that aircraft.

Slide 14 shows that depreciation increased by 17.3% to $23.3 million for the quarter and by 14.6% to $90.2 million for the year. This increase primarily relates to an increase of $3.1 million and $10.8 million respectively, relating to depreciation on planned major maintenance costs.

On slide 15, you will note that interest expense decreased by 9.4% to $17.4 million for the quarter, primarily reflecting lower commitment fees and the amortization of financing costs following the decision to downsize our revolving credit facility in the third quarter of 2009.

Over the full year, interest expense increased by 15.8% to $82.2 million. The increase relates primarily to $10.2 million in commitment fees and the amortization of financing costs in 2009 on a revolving credit facility. This includes a $7.7 million charge in the third quarter following the decision to downsize the facility.

Interest expense also increased as a result of new financings on aircraft acquired in 2008 and 2009. Our blended interest cost for the year excluding commitment fees and the amortization of financing costs was 5.58% compared to 5.83% in 2008.

We incurred very little maintenance expense as shown on slide 16 during the quarter and the year, as we had no defaults and very few transitions during the year. Our SG&A decreased by 11.1% to $4.6 million in the quarter, and by 12.7% to $20.9 million for the year, primarily reflecting continued efficiencies with building up our team through 2008 and reducing overall cost as a consequence.

With respect to tax, Genesis does not expect pay any material cash taxes for 2009 or for the foreseeable future on a stand-alone basis. Our effective tax rate is at 13.1% for the quarter, and 14% for the year which reflects the Irish corporate tax rate at 12.5% and the impact of certain non-deductible costs related to the transaction costs on the proposed merger.

Our EBITDA for the quarter as found on slide 17 increased by 12.6% to $58.3 million and by 3.2% to $203.3 million for the year. A reconciliation of EBITDA to net income appears in today's press release.

Turning to the balance sheet on slide 18, we had total assets of $1.76 billion at the yearend, of which $1.6 billion relates to aircraft. Accounts receivable was $3.4 million; of that amount lease receivables were $2.6 million across the portfolio, which cleared after the yearend.

As you will be aware, we have one aircraft with JAV who recently announced a significant restructuring of its business. JAV have indicated that our Boeing 767-300ER aircraft remained a core part of their future fleet and have continued to meet all of their obligation -- their lease obligations in a timely fashion.

Unrestricted cash was $86.1 million; total cash including restricted cash was $118.4 million. Our liabilities totaled $1.26 billion of which $1.12 billion reflect our debt facilities.

Accounts payable at yearend was $41.9 million, which has increased since last year primarily due to additional capitalized maintenance accruals relating to planned major maintenance costs.

Other liabilities are $97 million at yearend. The primary component there relates to the fair value of our swaps at $66.6 million.

On the financing side, on slide 19, the revolving portion of our credit facility matures in April 2010. On February 8, 2010, we exercised our option to term out any debt outstanding under the credit facility in April of 2010 over a further two years to April 2012.

There is currently only $31.2 million drawn under this facility. However, the decision defers the requirement to refinance this small amount of debt.

So the Company has now short-term refinancing requirements. After 2012, the next debt maturity is in 2015 and relate to only 11 aircraft.

Equally post-merger, the combined company will have substantial short-term financing capacity through AerCap's $1 billion revolver, which can be drawn through May 2011, and matures in April 2014. At quarter-end, our total debt-to-book debt and equity was 69.1%.

Moving to slide 20, in terms of the portfolio, as at yearend, the weighted average age of our portfolio was 7.4 years and excluding our three freighter aircraft, the weighted average age reduced to 6.5 years. As of that date, 53 of our 54 aircraft were on lease operation with 35 airlines in 21 countries.

The only aircraft not on lease was the 767-200 freighter, following an agreed early termination of the lease on that aircraft. As explained earlier, we are seeking to dispose off of that aircraft and consequently have reclassified it as held for sale on our balance sheet at its estimated fair value.

The weighted average remaining lease term on our portfolio was 4.4 years, and overall our lease terms reflect a well-balanced lease maturity profile extending out to 2021, which continues to provide visibility around our revenue cash flows.

We have four scheduled lease expirations in 2010, two of which we expect to transition to new customers in the first quarter. The remaining two leases expire in the fourth quarter of 2010 and are currently being remarketed.

Our portfolio performed well during 2009 and we've no repossessions during the year. Nevertheless, the operating environment remains challenging for airlines with some cautious optimism beginning to return.

Finally, during January 2010, we entered into settlement agreements with respect to a previous customer default and the related legal proceedings which we previously disclosed.

The terms are subject to a confidentiality agreement. We expect to receive the agreed compensation during the first quarter of 2010. Due to the nature of the agreement, we are unable to provide additional comments at this time.

With that, allow me to turn the call back to John for his closing remarks.

Thank you, Alan. Turning to slide 22, I'm very pleased with the continued strong performance of our portfolio in a very challenging environment in 2009. I'm equally excited about the enhanced shareholder value that should result from the merger with AerCap to create the world's leading independent aircraft lessor.

Both parties will contribute meaningfully to the combined Company, Genesis with its high-quality aircraft portfolio, and significant cash-generating capability, and AerCap with its contracted, placed and funded growth.

The transaction is expected to be highly EPS-accretive to Genesis shareholders, and we believe that the combined Company should be well-positioned to meet current industry challenges as well as to deliver continued profitable growth in the future.

On behalf of Genesis Lease and its Board of Directors, I'd like to take this opportunity to thank our shareholders, customers, our bondholders and lenders, our service of GECAS and our coverage analysts. It has been a privilege to lead Genesis since its inception, and I wish you all well in the future.

In conclusion, once again I urge our shareholders to review the proxy materials and to vote your shares in favor of the proposed transaction. If you have any questions, please contact Innisfree, our proxy solicitation firm, who'll be happy to answer your questions and to help you vote your shares.

To repeat, they can be reached at 877-687-1871 for U.S. and Canadian investors, and at country code 1, 412-232-3565 for international investors. With that, I'd like to open the call to questions.

(Operator Instructions) And Mr. McMahon, I'm sorry, no questions. I'd like to turn the call back over to you.

Okay. Well, I would just like to thank everybody for your participation today on our fourth quarter and yearend 2009 earnings call and wish everybody well for the future. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.