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Aercap Investment Pitch Shant Mardikian AerCap (NYSE: AER) Sr. Portfolio Manager November 17, 2019 Simone Aria Manoj Anandan Portfolio Manager Portfolio Manager Wasiq Wadud Melody Yu Analyst Jr. Analyst This presentation is for informational purposes only, and is not an offer to buy or sell or a solicitation to buy or sell any securities, investment products or other financial product or service, or an official confirmation of any transaction. Agenda 1 Company Overview 2 Industry Outlook 3 Investment Thesis 4 Valuation 5 Catalysts and Risks 6 Recommendation 2 COMPANY OVERVIEW AerCap Holdings NV (NYSE: AER) Business Description Management Team ▪ AerCap Holdings NV (NYSE: AER) is the most active aircraft trader and largest independent aircraft leasing company in the world ▪ AerCap focuses on acquiring in-demand aircrafts, Name Aengus Kelly Philip Scruggs Peter Juhas Joe Venuto funding them, hedging interest rate risk, and using Position CEO CCO CFO CTO its platform to deploy these assets Years Exp. 20+ 20+ 19 30+ − On average, AerCap purchases, sells or leases an aircraft once every 24 hours Previously CEO Previously Previously Previously and Group Executive VP Global Head of Senior VP of Background Treasurer of and CMO at Strategic AerCap and − Portfolio consists of 1,421 aircrafts with an AerCap U.S. IFLC Planning at AIG AeroTurbine average age of 6.2 years 2018 Geographically Segmented Revenue Available Liquidity $USD millions $USD billions Available Liquidity Coverage 10% $11.7 Asia/Pacific/Russia $10.8 $11.0 11% $9.5 $9.6 $10.0 36% Europe $9.0 $8.9 Total Revenue: United States/Canada/Carribean 13% $4,800 Latin America Africa/Middle East 1.6x 1.5x 1.3x 1.4x 1.5x 1.3x 1.4x 1.4x 30% 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Source(s): Company Filings, Reuters, Macquarie Research 3 COMPANY OVERVIEW Underlying Business Model Business Model Acquire Aircrafts Operating Leases Extend Lease or Sell Capital Because they are an independent Lessee is responsible for maintenance At the end of lease period, AerCap aircraft lessor, they have the flexibility to and servicing, AerCap receives either extends the lease or pursues a acquire capital at attractive prices benefits and assumes risk of residual more favourable return on aircraft regardless of the manufacturer. value. through sale AerCap Aircraft Portfolio Principal Customers Customer % of 2018 Lease Revenue American Airlines 7.1% 363 Number of Owned Aircraft Air France 4.3% Total Number Number of Managed Aircraft of Aircraft: China Southern Airlines 4.2% 96 1,421 Number of On-Order Aircraft 962 Emirates 4.1% LATAM Airlines 3.9% Source(s): Company Filings 4 COMPANY OVERVIEW PV Chart and Capitalization Table Price-Volume Analysis Market Data ($USD millions) $100 10 Earnings Release Capitalization Share Price (18-Dec-2019) (US$) $59.89 Basic Shares Outstanding (1) (mm) 134.7 24-Sept-18 AerCap appoints new Diluted Securities (mm) 23.8 Head of Trading and Market Capitalization (US$ mm) 9,493 $80 Portfolio Management 8 2-Feb-18 AerCap names Vincent (-) Cash & Equivalents (US$ mm) (1,047) 12-Jun-19 Drouillard General (+) Short-Term Debt (US$ mm) 116 Counsel AerCap announces $200mm share (+) Long-Term Debt (US$ mm) 29,335 repurchase program (+) Minority Interest (US$ mm) 65 $60 6 Enterprise Value (US$ mm) 37,963 Trading Multiples P / 2018A BVPS - 1.0x P / 2019E BVPS - 0.9x Share Share Price $40 4 P / 2020E BVPS - 0.8x Volume (millions) 02-Nov-17 P / 2018A EPS - 8.8x AerCap reports lackluster earnings and P / 2019E EPS - 7.4x 10-Mar-19 announces share Ethiopian Airlines P / 2020E EPS - 7.8x repurchase program Boeing 737 plane is involved in a fatal crash $20 2 Market Data 52-Week High (US$) $62.86 % of 52-Week High (%) 95.3% 52-Week Low (US$) $36.16 (2) 1.10 $0 0 Beta - Nov-16 May-17 Nov-17 May-18 Nov-18 May-19 Source(s): Capital IQ, Bloomberg, Press Releases, SEC Filings, CBC,CNN 1. Common Shares Outstanding derived from AerCap’s 6-K Filing as of November 8th, 2019 and includes unvested restricted 5 stock 2. AerCap’s beta is derived from Bloomberg’s 2-year adjusted beta calculations COMPANY OVERVIEW Shareholder Overview Shareholder Summary Ownership Structure (in millions) # of Shares % of Shares Insiders Held Outstanding 2%5% 6% Insiders AllianceBernstein 6% Kelly, Aengus 3.3 2.4% 6% Scruggs, Philip Gene 0.2 0.1% Shares Waha Capaital Juhas, Peter 0.2 0.1% Outstanding: Lawrence, James Arthur 0.1 0.1% (1) 134.7mm Eagle Capital Other Insiders 2.4 1.8% Management Total Insiders 6.2 4.6% Other Institutions Institutions 76% AllianceBernstein 8.3 6.2% Retail & Others Waha Capaital 8.2 6.1% Eagle Capital Management 8.0 5.9% Wellington Management Group 7.4 5.5% Short Interest BlackRock 6.3 4.7% FMR LLC 6.0 4.5% 10.0% 5-Year Avg. = 4.64% Lyrical Asset Management 5.9 4.4% Current = 1.48% Donald Smith & Co 5.7 4.2% 8.0% State Street Global Advisors 3.7 2.7% GreenLight Capital 3.5 2.6% Neuberger Berman BD LLC 3.2 2.4% 6.0% Cambiar Investors 3.0 2.2% Other Institutions 57.1 42.4% 4.0% Total Institutions 126.3 93.8% Retail & Other Investors 2.2 1.6% 2.0% Public Float 128.5 95.4% Total Basic Shares Outstanding 134.7 100.0% 0.0% 2014 2015 2016 2017 2018 2019 Source(s): Capital IQ, Bloomberg 1. Unvested restricted stock assigned to Other Insiders as not previously specified in SEC Filings 6 COMPANY OVERVIEW Operating Metrics Revenue Total Assets $USD millions $USD billions $6,000 $50 $5,288 $5,152 $5,205 $5,037 $4,962 $4,800 $4,914 $5,000 $45 $43.7 $43.2 $41.6 $42.0 $4,000 $40 $3,000 $35 2015 2016 2017 2018 2019E 2020E 2021E Decrease in revenue can be attributed to a lower net gain on sale $30 of assets and several lease terminations 2015 2016 2017 2018 Pre-Tax Income Book Value Per Share $USD millions $80 $2,000 EBT Margin 30.0% $63.0 $60 $57.2 $1,500 22.5% $49.3 $42.0 $1,000 15.0% $40 $500 7.5% $20 $0 0.0% $0 2015 2016 2017 2018 2019E 2020E 2021E 2015 2016 2017 2018 Source(s): Company Filings 7 Agenda 1 Company Overview 2 Industry Outlook 3 Investment Thesis 4 Valuation 5 Catalysts and Risks 6 Recommendation 8 INDUSTRY OVERVIEW The Economics of Commercial Leasing Commercial Leasing Demand Core Industry Drivers ▪ Commercial airlines are the primary market for major aircraft lessors such as AerCap Interest Rates ̶ Increases in airline trips prompt carriers to rapidly expand and update fleets to accommodate new demand more flexibly Demand for Passenger Flights ▪ Lease demand remains steady throughout economic cycles, allowing airlines to avoid massive capex and depreciation expenses Global Air Freight Shipments ▪ Volatile energy prices incentivize carriers to maintain access to the newest, most fuel-efficient aircrafts Global Fuel Costs without needing to purchase entire aircrafts Macroeconomic Forces Driving Leasing Revenue Effects of Borrowing Costs on Lease Demand Revenue Correlation to Global Passengers Total Growth in Global Passenger Flights $USD millions $USD millions AER Revenue Prime Rate 4,579 $5,200 4.0% $6,000 R² = 0.86 $5,000 3.0% $4,500 $4,800 1,994 2.0% $3,000 $4,600 $4,400 1.0% $1,500 $4,200 0.0% $0 2015 2016 2017 2018 2019 1,800 2,600 3,400 4,200 5,000 2004 2007 2010 2013 2016 2019 Decreasing borrowing costs as rates fall Clear relationship between leasing revenue Strong growth in passenger flights driven by bolster downstream demand for leases and number of global airline passengers globalization, to support lease revenue Sources: U.S. Treasury, Statista, IBIS World, Company Filings 9 INDUSTRY OVERVIEW Competitive Landscape Increasing Industry Consolidation Substantial Barriers to Entry ▪ Substantial financial resources, high barriers to entry, Barrier Dynamics and established customer networks favour high ▪ Require favourable rates to finance fleet purchases Access to Credit market share concentration among key players – supporting those with existing large asset bases Service and Upkeep ▪ Servicing aircrafts requires large capital outlays to ▪ Growing number of acquisitions as larger players Costs ensure they align with regulatory standards absorb smaller operators Stringent Regulatory ▪ Regulatory bodies such as the FAA1 have stringent ̶ i.e. AerCap’s 2014 acquisition of ILFC Requirements guidelines for regular aircraft maintenance Established ▪ Due to high supplier switching-costs, lessors with ▪ Lessors with the largest selection of aircrafts act as Customer Networks existing networks fare the best in this industry “one-stop shops” for carriers – pushing weaker firms Ability to Maintain ▪ Technological changes, environmental concerns, out of the market Up-to-Date Aircraft and the demand for fuel-efficiency favour lessors Fleets that can adjust fleet composition the fastest Fleet Value of Leading Aircraft Operating Lessors in 2018 (In $US millions) 34,680 24,652 +41% AerCap’s total 20,916 +277% fleet value is 19,426 ~41% higher 16,200 than the next 16,148 leading lessor 14,796 14,620 10,610 9,206 Source(s): Statista, IBIS World 1. Federal Aviation Administration 10 INDUSTRY OVERVIEW Structural Growth in Air Traffic Resiliency of Air Travel Asian Tech Financial RPKs (trillions) Gulf Crisis 9/11 SARS Crisis Bubble Crisis 9 6 3 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Since 1980, air travel has increased by 8x while enduring the cold war, 4 financial recessions, 2 financial crises, several oil shocks, 1 near pandemic (SARS) and over a decade of terrorism fears Forecasted Passenger Volume CAGR by Region Shift to Air Travel Change since 2018 2011 2.3% 2.4% 5.9% Global Population 7.6 billion 8.4% 4.9% Global Rail Traffic 3.9 trillion 17.5% 4.9% Passenger
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