Air Lease (AL) - 2024 Q3 - Quarterly Report

Note About Forward-Looking Statements Forward-looking statements are not guarantees of future performance and involve risks that may cause actual results to vary materially - Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors that may cause actual results to vary materially[7] - Key risk factors include inability to obtain additional capital, increases in borrowing costs, manufacturer failures (e.g., labor strikes, supply chain constraints, manufacturing flaws), losses related to aircraft detained in Russia, obsolescence, changes in aircraft value and lease rates, impaired financial condition of lessees, increased competition, and changes in the regulatory environment[7] PART I—FINANCIAL INFORMATION This part presents the company's unaudited consolidated financial statements and management's discussion and analysis Item 1 Financial Statements This section presents the unaudited consolidated financial statements of Air Lease Corporation for the period ended September 30, 2024, including balance sheets, income statements, statements of shareholders' equity, and cash flow statements, along with detailed notes Consolidated Balance Sheets This section provides a snapshot of the company's financial position, including assets, liabilities, and shareholders' equity Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------- | :----------- | :----------- | | Total Assets | $32,153,829 | $30,452,252 | | Flight equipment subject to operating leases (net) | $27,894,901 | $26,231,208 | | Total Liabilities | $24,478,132 | $23,292,214 | | Debt financing, net | $20,161,860 | $19,182,657 | | Total Shareholders' Equity | $7,675,697 | $7,160,038 | Consolidated Statements of Income and Other Comprehensive Income This section outlines the company's financial performance, including total revenues, expenses, net income, and earnings per share Consolidated Statements of Income Highlights (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenues | $690,164 | $659,364 | $2,020,762 | $1,968,409 | | Interest Expense | $217,463 | $175,464 | $615,463 | $525,969 | | Depreciation of flight equipment | $290,132 | $267,393 | $849,374 | $795,659 | | Net Income | $103,971 | $132,450 | $314,783 | $393,571 | | Net Income Attributable to Common Stockholders | $91,646 | $122,025 | $279,525 | $362,296 | | Diluted EPS | $0.82 | $1.10 | $2.50 | $3.25 | Consolidated Statements of Shareholders' Equity This section details changes in shareholders' equity, including preferred stock issuance and cash dividends declared - Total shareholders' equity increased from $7.16 billion at December 31, 2023, to $7.68 billion at September 30, 2024[15] - Issuance of preferred stock contributed $295.5 million to paid-in capital during the three months ended September 30, 2024[15] - Cash dividends declared on Class A common stock were $0.21 per share for each quarter in 2024, totaling $23.39 million to $23.39 million per quarter[15] Consolidated Statements of Cash Flows This section presents the company's cash flows from operating, investing, and financing activities for the period Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $1,247,055 | $1,282,306 | | Net cash used in investing activities | $(2,678,168) | $(1,668,686) | | Net cash provided by financing activities | $1,431,971 | $122,097 | | Net increase/(decrease) in cash | $858 | $(264,283) | - Cash paid for interest increased to $590.7 million for the nine months ended September 30, 2024, from $532.9 million in the prior year[20] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements Note 1. Company Background and Overview This note provides background on ALC's business, including its fleet size, managed aircraft, and aircraft orders - ALC owned 485 aircraft, managed 64 aircraft, and had 287 aircraft on order as of September 30, 2024[21] - The company's primary business is purchasing and leasing modern, fuel-efficient commercial jet aircraft directly from manufacturers like Boeing and Airbus[21] Note 2. Basis of Preparation and Critical Accounting Policies This note outlines the basis of financial statement preparation and the evaluation of new accounting standards - The company is evaluating ASU 2023-09 (Income Taxes) and ASU 2024-03 (Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures) but does not expect a material impact on its financial statement disclosures from ASU 2023-09[24][25] Note 3. Debt Financing This note details the company's debt structure, including unsecured and secured financing, and recent debt issuances Debt Financing Summary (in thousands) | Debt Type | Sep 30, 2024 | Dec 31, 2023 | | :-------------------------- | :----------- | :----------- | | Total Unsecured Debt Financing | $19,797,918 | $19,058,005 | | Total Secured Debt Financing | $551,749 | $305,455 | | Total Debt Financing | $20,349,667 | $19,363,460 | | Debt financing, net | $20,161,860 | $19,182,657 | - During the nine months ended September 30, 2024, ALC issued $500.0 million in 5.10% Medium-Term Notes due 2029, C$400.0 million in 5.40% Medium-Term Notes due 2028, €600.0 million in 3.70% Medium-Term Notes due 2030, $600.0 million in 5.30% Medium-Term Notes due 2026, and $600.0 million in 5.20% Medium-Term Notes due 2031[29] - The Revolving Credit Facility was amended and extended to May 5, 2028, with total commitments of approximately $7.8 billion as of May 5, 2024[32] - In August 2024, a $750.0 million term loan was increased by $500.0 million (borrowed Oct 1, 2024) and a new $250.0 million unsecured term loan was entered into. A $267.3 million secured term loan was also entered into, collateralized by six aircraft[34][35] Note 4. Flight equipment subject to operating lease This note outlines changes in flight equipment under operating leases and the status of aircraft detained in Russia Flight Equipment Subject to Operating Lease Activity (in thousands) | Activity | 9 Months Ended Sep 30, 2024 | | :---------------------------------------------------------------------------------- | :-------------------------- | | Net book value as of December 31, 2023 | $26,231,208 | | Purchase of aircraft | $3,730,181 | | Depreciation | $(849,374) | | Reclassified to flight equipment held for sale | $(1,143,097) | | Reclassified to investment in sales-type lease | $(74,017) | | Net book value as of September 30, 2024 | $27,894,901 | - 16 aircraft previously owned by ALC are still detained in Russia as of November 7, 2024, with ongoing litigation and uncertain recovery[41] Note 5. Flight Equipment Held for Sale This note details activity and expectations for aircraft classified as held for sale Flight Equipment Held for Sale Activity (in thousands) | Activity | 9 Months Ended Sep 30, 2024 | | :---------------------------------------------------------------------------------- | :-------------------------- | | Flight equipment held for sale as of December 31, 2023 | $605,104 | | Reclassified from operating leases to held for sale | $1,143,097 | | Aircraft sales | $(1,007,111) | | Flight equipment held for sale as of September 30, 2024 | $741,090 | - The company expects to complete the sale of all 23 aircraft classified as held for sale by the second half of 2025[42] Note 6. Commitments and Contingencies This note details contractual aircraft delivery commitments and the impact of ongoing manufacturing and supply chain delays Contractual Delivery Commitment Schedule (Number of Aircraft) | Aircraft Type | Last 3 months of 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | | :-------------------- | :-------------------- | :--- | :--- | :--- | :--- | :--------- | :---- | | Airbus A220-100/300 | 8 | 14 | 6 | 12 | 12 | 2 | 54 | | Airbus A320/321neo | 3 | 7 | 23 | 57 | 40 | 4 | 134 | | Airbus A330-900neo | 2 | — | 1 | — | — | — | 3 | | Airbus A350F | — | — | — | 4 | 2 | 1 | 7 | | Boeing 737-8/9 MAX | 11 | 27 | 20 | 12 | 2 | — | 72 | | Boeing 787-9/10 | 6 | 7 | 4 | — | — | — | 17 | | Total | 30 | 55 | 54 | 85 | 56 | 7 | 287 | - Estimated aggregate commitment for aircraft purchases is $18.2 billion through 2029[46][52] - Delivery schedules are subject to ongoing delays from Airbus and Boeing due to manufacturing delays, supply chain constraints, and the Boeing labor strike (which ended Nov 4, 2024)[47][48][50] Note 7. Rental Income This note provides the schedule of minimum future rental income from non-cancellable operating leases Minimum Future Rentals on Non-Cancellable Operating Leases (in thousands) | Years ending December 31, | Amount | | :------------------------------------------------------------------------- | :----------- | | 2024 (excluding the nine months ended September 30, 2024) | $637,071 | | 2025 | $2,500,678 | | 2026 | $2,308,894 | | 2027 | $2,109,214 | | 2028 | $1,930,335 | | Thereafter | $8,160,494 | | Total | $17,646,686 | Note 8. Earnings Per Share This note reconciles net income attributable to common stockholders to basic and diluted earnings per share Earnings Per Share Reconciliation (in thousands, except per share) | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income attributable to common stockholders | $91,646 | $122,025 | $279,525 | $362,296 | | Basic EPS | $0.82 | $1.10 | $2.51 | $3.26 | | Diluted EPS | $0.82 | $1.10 | $2.50 | $3.25 | - The company excluded 1,047,068 and 965,788 shares related to restricted stock units for which performance metrics had not yet been achieved as of September 30, 2024 and 2023, respectively, from diluted EPS calculation[56] Note 9. Fair Value Measurements This note discusses fair value measurements for debt financing and derivative instruments, categorized by valuation levels - As of September 30, 2024, the estimated fair value of debt financing was $20.2 billion, compared to a book value of $20.3 billion[59] - Cross-currency swaps related to Canadian dollar and Euro Medium-Term Notes are categorized as Level 2 fair value measurements[58] Note 10. Shareholders' Equity This note details common and preferred stock, including outstanding shares, recent issuances, and redemption notices - As of September 30, 2024, 111,376,884 shares of Class A common stock were outstanding[62] - The company issued 300,000 shares of Series D Preferred Stock on September 24, 2024, with an initial dividend rate of 6.00% through December 15, 2029[64] - A notice of redemption for all outstanding Series A Preferred Stock was issued on September 17, 2024, with a redemption date of October 17, 2024[63] Note 11. Stock-based Compensation This note reports stock-based compensation expense and the remaining unrecognized compensation expense Stock-based Compensation Expense (in thousands) | Period | Stock-based Compensation Expense | | :-------------------------- | :------------------------------- | | 3 Months Ended Sep 30, 2024 | $7,919 | | 3 Months Ended Sep 30, 2023 | $8,719 | | 9 Months Ended Sep 30, 2024 | $25,031 | | 9 Months Ended Sep 30, 2023 | $23,330 | - As of September 30, 2024, there was $38.8 million of unrecognized compensation expense related to unvested stock-based payments, to be recognized over a weighted-average remaining period of 1.73 years[70] Note 12. Aircraft Under Management This note provides details on the number of aircraft managed and the completion of portfolio sales by Thunderbolt I - ALC managed 64 aircraft as of September 30, 2024, down from 78 aircraft as of December 31, 2023[71][89] - Thunderbolt I completed the sale of all 13 aircraft in its portfolio by October 30, 2024[74] Note 13. Net Investment in Sales-type Leases This note details the net investment in sales-type leases, including future minimum lease payments and estimated residual values Net Investment in Sales-type Leases (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------- | :----------- | :----------- | | Future minimum lease payments to be received | $341,757 | $285,443 | | Estimated residual values | $135,758 | $108,688 | | Less: Unearned income | $(62,959) | $(53,412) | | Net Investment in Sales-type Leases | $414,556 | $340,719 | - As of September 30, 2024, sales-type leases covered 14 aircraft and one engine, compared to 12 aircraft at December 31, 2023[75] Note 14. Subsequent Events This note reports significant events after the balance sheet date, including preferred stock redemption and declared cash dividends - On October 17, 2024, ALC redeemed all outstanding shares of Series A Preferred Stock at $25.00 per share plus declared dividends[79] Declared Quarterly Cash Dividends (November 6, 2024) | Class | Cash Dividend per share | Record Date | Payment Date | | :-------------------- | :---------------------- | :------------ | :----------- | | Class A Common Stock | $0.22 | Dec 12, 2024 | Jan 9, 2025 | | Series B Preferred Stock | $11.625 | Nov 30, 2024 | Dec 15, 2024 | | Series C Preferred Stock | $10.3125 | Nov 30, 2024 | Dec 15, 2024 | | Series D Preferred Stock | $13.50 | Nov 30, 2024 | Dec 15, 2024 | Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and key trends. It covers fleet growth, financial performance, liquidity, capital allocation, and market risks, highlighting the impact of higher interest rates and aircraft delivery delays Overview This overview summarizes ALC's fleet growth, financial performance, liquidity, and debt position for the period - As of September 30, 2024, ALC's owned fleet comprised 485 aircraft, with a net book value of $27.9 billion (up 6.3% from Dec 31, 2023)[83][89] - Total revenues for Q3 2024 increased by 4.7% to $690.2 million, driven by fleet growth and increased sales activity, but net income attributable to common stockholders decreased to $91.6 million ($0.82 diluted EPS) from $122.0 million ($1.10 diluted EPS) in Q3 2023, primarily due to higher interest expense[85][86][87] - The company ended Q3 2024 with $7.5 billion in total liquidity, including $6.5 billion in undrawn revolving credit facility capacity. Total debt outstanding was $20.3 billion, with 81.0% fixed-rate and 97.3% unsecured, and a composite cost of funds of 4.21%[84][120][121] Our Fleet This section provides detailed fleet statistics, including net book value, age, remaining lease term, and customer diversification Fleet Statistics | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------- | :----------- | :----------- | | Net book value of flight equipment subject to operating lease | $27.9 billion | $26.2 billion | | Weighted-average fleet age | 4.6 years | 4.6 years | | Weighted-average remaining lease term | 7.1 years | 7.0 years | | Owned fleet | 485 | 463 | | Managed fleet | 64 | 78 | | Aircraft on order | 287 | 334 | - The company's customer base is globally diversified, with 117 airlines in 59 countries, and over 95% of business revenues from non-U.S. airlines[83][109] Owned Fleet by Aircraft Type (Number of Aircraft) | Aircraft type | Sep 30, 2024 | Dec 31, 2023 | | :-------------------- | :----------- | :----------- | | Airbus A321-200neo | 108 | 95 | | Boeing 737-800 | 64 | 73 | | Boeing 737-8 MAX | 58 | 52 | | Boeing 737-9 MAX | 30 | 29 | | Airbus A330-900neo | 26 | 23 | | Boeing 787-9 | 26 | 25 | | Boeing 777-300ER | 24 | 24 | | Airbus A320-200neo | 23 | 25 | | Airbus A320-200 | 26 | 28 | | Airbus A321-200 | 21 | 23 | | Airbus A220-300 | 17 | 13 | | Airbus A350-900 | 17 | 14 | | Airbus A330-200 | 13 | 13 | | Boeing 787-10 | 9 | 6 | | Airbus A350-1000 | 8 | 7 | | Airbus A220-100 | 5 | 2 | | Boeing 737-700 | 2 | 3 | | Airbus A319-100 | 1 | 1 | | Boeing 777-200ER | 1 | 1 | | Embraer E190 | 1 | 1 | | Total | 485 | 463 | Aircraft Delivery Delays This section addresses the impact of manufacturer issues and supply chain constraints on aircraft delivery schedules - Boeing 737 MAX production rates are restricted by the FAA due to quality control issues, and the recent Boeing labor strike (ended Nov 4, 2024) further impacted 737 MAX and some 787 deliveries[103][107] - Airbus deliveries are also impacted by Pratt & Whitney GTF engine manufacturing flaws and potential broader aviation supply chain issues stemming from the Boeing strike[107] Contractual vs. Expected Aircraft Delivery Commitments (Number of Aircraft) | Delivery Year | Contractual | Expected (as of Nov 7, 2024) | | :-------------------- | :---------- | :----------------------------- | | Last 3 months of 2024 | 30 | 14 | | 2025 | 55 | 56 | | 2026 | 54 | 60 | | 2027 | 85 | 78 | | 2028 | 56 | 68 | | Thereafter | 7 | 11 | | Total | 287 | 287 | - ALC has placed 100% of its committed orderbook on long-term leases for aircraft delivering through the end of 2025 and 95% through 2026[83][108] Aircraft Industry and Sources of Revenues This section analyzes passenger traffic trends, global load factors, and their influence on lease rates and borrowing costs - Passenger traffic volume increased by 7% in September 2024 YoY, with international traffic up 9% and domestic traffic up 4%. Total passenger traffic for the nine months ended September 30, 2024, rose 11% compared to 2023[111] - Global passenger load factors were 84% in September 2024, up from 83% in the prior year, indicating strong airline demand for additional aircraft[111] - Increased demand for new aircraft, elevated interest rates, and inflation have led to higher lease rates on new agreements and extensions, though these increases still lag rising borrowing costs[114] - The Federal Reserve lowered the target range for the Federal Funds Rate to 4.50% to 4.75% as of November 7, 2024, which should reduce floating-rate borrowing costs[115] Update on Russian Fleet This section provides an update on aircraft detained in Russia and the ongoing insurance litigation for recovery of losses - As of November 7, 2024, 16 owned aircraft and 2 managed aircraft remain detained in Russia[119] - ALC filed suit in Los Angeles in December 2022 against its aviation insurers (trial set for April 17, 2025) and in England in January 2024 against Russian airlines' insurers, seeking recovery for losses[118][190][191] - In December 2023, ALC received approximately US$64.9 million in insurance settlement proceeds for four aircraft leased to S7[190] Liquidity and Capital Resources This section discusses the company's liquidity position, capital allocation strategy, and material cash sources and requirements Overview This overview summarizes total liquidity, unrestricted cash, undrawn credit facilities, and debt characteristics - Total liquidity as of September 30, 2024, was $7.5 billion, including $460.8 million unrestricted cash, $500.0 million unfunded term loan commitments, and $6.5 billion undrawn revolving credit facility[120] - Total debt outstanding was $20.3 billion, with 81.0% fixed-rate and 97.3% unsecured, and a composite cost of funds of 4.21% as of September 30, 2024[121] Capital Allocation Strategy This section outlines the company's capital allocation priorities, focusing on growth, balance sheet strength, and shareholder returns - Capital allocation priorities are: 1) investing in modern aircraft for core leasing business growth, 2) maintaining an investment-grade balance sheet with unsecured debt, and 3) returning excess cash to shareholders via dividends and share repurchases[122] Material Cash Sources and Requirements This section details the company's material cash sources, including rental payments and debt issuances, and future cash requirements - Unrestricted cash was $0.5 billion at the end of Q3 2024[123] - Committed minimum future rental payments total $29.7 billion, with $2.5 billion expected in the next 12 months from existing leases[123] - The $7.8 billion revolving credit facility has $1.3 billion outstanding as of September 30, 2024, with significant undrawn capacity[123] - During the nine months ended September 30, 2024, ALC issued approximately $2.6 billion in Medium-Term Notes with a weighted average interest rate of 5.3%[124] - The aircraft sales pipeline is $1.5 billion, including $741.1 million classified as held for sale and $745.0 million subject to letters of intent. The company expects to sell approximately $1.5 billion in aircraft for 2024[124] Material Cash Requirements (in thousands) | Requirement | Last 3 months of 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | | :------------------------------------- | :-------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Contractual purchase commitments | $2,341,110 | $3,687,740 | $3,527,040 | $5,227,217 | $3,002,390 | $416,433 | $18,201,930 | | Long-term debt obligations | $423,509 | $2,798,505 | $5,281,687 | $2,786,350 | $4,238,788 | $4,820,828 | $20,349,667 | | Interest payments on debt outstanding | $210,064 | $841,654 | $700,531 | $542,910 | $321,568 | $413,050 | $3,029,777 | | Total | $2,974,683 | $7,327,899 | $9,509,258 | $8,556,477 | $7,562,746 | $5,650,311 | $41,581,374 | - For 2024, ALC expects to make approximately $4.6 billion in aircraft investments[129] Cash Flows This section summarizes the changes in cash flows from operating, investing, and financing activities for the period - Net cash provided by operating activities decreased by 2.7% to $1.25 billion for the nine months ended September 30, 2024, primarily due to increased composite cost of funds, partially offset by higher customer cash collections[129] - Net cash used in investing activities increased to $2.7 billion for the nine months ended September 30, 2024, from $1.7 billion in the prior year, driven by higher aircraft investments[129] - Net cash provided by financing activities increased to $1.43 billion for the nine months ended September 30, 2024, from $122.1 million in the prior year, mainly due to increased debt borrowings[129] Debt This section provides a summary of debt financing, including total debt, composite interest rates, and credit facility details Debt Financing Summary (in thousands, except percentages) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------- | :----------- | :----------- | | Total Debt Financing | $20,349,667 | $19,363,460 | | Composite interest rate | 4.21% | 3.77% | | Composite interest rate on fixed-rate debt | 3.72% | 3.26% | | Percentage of total debt at a fixed-rate | 81.05% | 84.71% | - Senior unsecured securities outstanding were $16.4 billion as of September 30, 2024[133] - The Revolving Credit Facility was extended to May 5, 2028, with total commitments of approximately $7.8 billion[137] Preferred equity This section details preferred stock issuances, redemptions, and outstanding shares with their respective dividend rates - Issued 300,000 shares of Series D Preferred Stock on September 24, 2024, with an initial 6.00% fixed dividend rate through December 15, 2029[143] - Redeemed all outstanding Series A Preferred Stock on October 17, 2024, at $25.00 per share plus declared dividends[144] Preferred Stock Issued and Outstanding (as of Sep 30, 2024, in thousands, except share amounts and percentages) | Series | Shares Issued and Outstanding | Liquidation Preference | Issue Date | Dividend Rate (Sep 30, 2024) | Next Dividend Rate Reset Date | | :------------- | :---------------------------- | :--------------------- | :--------- | :----------------------------- | :---------------------------- | | Series A (5) | 10,000,000 | $250,000 | Mar 5, 2019 | 3M Term SOFR plus 3.65% | N/A | | Series B | 300,000 | $300,000 | Mar 2, 2021 | 4.65% | Jun 15, 2026 | | Series C | 300,000 | $300,000 | Oct 13, 2021 | 4.125% | Dec 15, 2026 | | Series D | 300,000 | $300,000 | Sep 24, 2024 | 6.00% | Dec 15, 2029 | | Total | 10,900,000 | $1,150,000 | | | | Off-balance Sheet Arrangements This section describes the company's non-controlling interests in various investment funds - ALC has non-controlling interests of 9.5% in two investment funds (Blackbird I and II), accounted for under the equity method[149] - ALC holds non-controlling interests of approximately 5.0% in two entities through its Thunderbolt platform, accounted for under the cost method[150] Credit Ratings This section presents the company's current credit ratings and their importance for funding costs and capital access Current Credit Ratings | Rating Agency | Long-term Debt | Corporate Rating | Outlook | Date of Last Ratings Action | | :-------------------- | :------------- | :--------------- | :------ | :-------------------------- | | Kroll Bond Ratings | A- | A- | Stable | March 22, 2024 | | Standard and Poor's | BBB | BBB | Stable | November 1, 2024 | | Fitch Ratings | BBB | BBB | Stable | December 19, 2023 | - Investment-grade ratings are crucial for lowering funding costs and accessing capital, though a downgrade could adversely affect debt issuance and financing terms[151] Results of Operations This section analyzes the company's financial performance for the three and nine months ended September 30, 2024 Three months ended September 30, 2024, compared to the three months ended September 30, 2023 This section compares key financial metrics for the third quarter of 2024 against the same period in 2023 Q3 2024 vs. Q3 2023 Financial Performance (in thousands, except per share amounts and percentages) | Metric | Q3 2024 | Q3 2023 | | :------------------------------------- | :----------- | :----------- | | Rental of flight equipment revenue | $625,180 | $604,027 | | Aircraft sales, trading and other revenue | $64,984 | $55,337 | | Total revenues | $690,164 | $659,364 | | Interest expense | $217,463 | $175,464 | | Depreciation of flight equipment | $290,132 | $267,393 | | Net income attributable to common stockholders | $91,646 | $122,025 | | Diluted EPS | $0.82 | $1.10 | | Adjusted net income before income taxes | $140,197 | $177,007 | | Adjusted diluted EPS before income taxes | $1.25 | $1.59 | - The effective tax rate increased to 20.2% from 19.7% due to discrete items and the impact of Pillar Two[166] Nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 This section compares key financial metrics for the nine months ended September 30, 2024, against the same period in 2023 9M 2024 vs. 9M 2023 Financial Performance (in thousands, except per share amounts and percentages) | Metric | 9M 2024 | 9M 2023 | | :------------------------------------- | :----------- | :----------- | | Rental of flight equipment revenue | $1,849,014 | $1,833,533 | | Aircraft sales, trading and other revenue | $171,748 | $134,876 | | Total revenues | $2,020,762 | $1,968,409 | | Interest expense | $615,463 | $525,969 | | Depreciation of flight equipment | $849,374 | $795,659 | | Net income attributable to common stockholders | $279,525 | $362,296 | | Diluted EPS | $2.50 | $3.25 | | Adjusted net income before income taxes | $423,847 | $519,704 | | Adjusted diluted EPS before income taxes | $3.79 | $4.67 | - The effective tax rate increased to 20.0% from 19.2% due to discrete items and the impact of Pillar Two[176] Critical Accounting Estimates This section confirms no material changes to critical accounting estimates for the reported period - No material changes to critical accounting estimates were reported for the nine months ended September 30, 2024[181] Item 3 Quantitative and Qualitative Disclosures About Market Risk This section discusses ALC's exposure to market risks, primarily from interest rate fluctuations and foreign exchange rates, and the strategies employed to mitigate these risks Interest Rate Risk This section discusses the company's exposure to floating-rate debt and strategies to mitigate interest rate risk - As of September 30, 2024, ALC had $3.9 billion in floating-rate debt outstanding, up from $3.0 billion at December 31, 2023[183] - A 1.0% increase in the composite interest rate on floating-rate debt would result in an additional annual interest expense of approximately $38.6 million (as of Sep 30, 2024)[183] - To mitigate interest rate risk on forward lease placements, a majority of contracts include manufacturer escalation protection and/or interest rate adjusters[184] Foreign Exchange Rate Risk This section addresses the company's exposure to foreign currency denominated revenues, assets, and debt obligations - Approximately 0.4% of lease revenues and 0.005% of total assets (net investments in sales-type leases) were denominated in foreign currency as of September 30, 2024[185] - Approximately 8.0% of debt obligations were foreign currency denominated as of September 30, 2024, but this exposure is effectively hedged[186] - Over 95% of revenues are from non-U.S. customers, whose ability to make U.S. dollar lease payments could be adversely impacted by an appreciating U.S. dollar[186] Item 4 Controls and Procedures This section confirms the effectiveness of ALC's disclosure controls and procedures as of September 30, 2024, and states that there were no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures as concluded by the Certifying Officers - The Certifying Officers concluded that disclosure controls and procedures were effective as of September 30, 2024[188] Changes in Internal Control Over Financial Reporting This section reports that no material changes in internal control over financial reporting occurred during the quarter - No material changes in internal control over financial reporting occurred during Q3 2024[189] PART II—OTHER INFORMATION This part presents other information, including legal proceedings, risk factors, and various disclosures not covered in the financial statements Item 1 Legal Proceedings ALC is engaged in ongoing legal proceedings to recover losses for aircraft detained in Russia, including lawsuits against its aviation insurers and Russian airlines' insurers. While some settlements have been received, the overall outcome remains uncertain - ALC filed suit in Los Angeles in December 2022 against its aviation insurers (trial set for April 17, 2025) and in England in January 2024 against Russian airlines' insurers, seeking recovery for losses related to aircraft detained in Russia[190][191] - In December 2023, ALC received approximately US$64.9 million in insurance settlement proceeds for four aircraft leased to S7[190] - The company does not believe these matters will have a material adverse effect on its financial results, as the entire interest in detained aircraft was written off in 2022[192] Item 1A Risk Factors There have been no material changes to the risk factors previously discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to risk factors from the 2023 Annual Report on Form 10-K were reported[196] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[196] Item 3 Defaults Upon Senior Securities This section states that there were no defaults upon senior securities to report - No defaults upon senior securities to report[196] Item 4 Mine Safety Disclosures This section states that there were no mine safety disclosures to report - No mine safety disclosures to report[196] Item 5 Other Information This section states that there is no other information to report, specifically regarding Rule 10b5-1 trading arrangements - No Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements to report[197] Item 6 Exhibits This section lists the exhibits filed with the 10-Q report, including organizational documents, debt instruments, purchase agreements, and certifications - The report includes various exhibits such as restated certificate of incorporation, bylaws, certificates of designations for preferred stock, and amendments to purchase agreements with Airbus and Boeing[198][199] Signatures This section provides the signatures of the certifying officers and the date of the report filing - The report was signed by John L. Plueger (CEO and President) and Gregory B. Willis (EVP and CFO) on November 7, 2024[200]