AERCAP HOLDINGS N.V.

AER
Delayed Nyse - 04:00 2022-12-07 pm EST
58.99 USD -1.68%

Transcript : AerCap Holdings N.V. Presents at 12th Annual Aircraft Finance & Leasing Conference, Sep-07-2022 01:00 PM

09/07/2022 | 01:00pm

Presenter Speech
Douglas Runte (Analysts)

The next speaker requires no introduction. I've had the pleasure of knowing Gus Kelly for 20-some-odd years, have followed this progression, his near-vertical ascent in terms of what he's done at his company. I'm very pleased that he's able to present here today and give an overview of AerCap, and perhaps some of the interesting things that have happened over the last 12 months and what's going to happen going forward.

So with that non-introduction, Mr. Gus Kelly.

Presenter Speech
Aengus Kelly (Executives)

Great. Thanks very much, Doug. Thanks for having us here at this conference once again. It is, for sure, the best tenant conference on the street, and it's great that Deutsche Bank kept it going last year as well. And we really appreciate all the support and effort that Deutsche Bank puts into the sector. And of course, it's great to see so many investors here today.

I have a couple of slides here. That's about it. And I really do want it to be Q&A because I think that's far more informative than me just putting that slide that you may know some of the substance of already.

But in the macro world, what's happening? Recovery has come. Every single market, almost without exception, that's been open for a year, we're back at 2019 level. So when I say a market, I mean a route, so from a city pairing A to city pairing B.

If they've been open for a year, they're pretty much back to 2019 levels. Now there's still -- on top of that, there's still a lot of markets that aren't open yet, particularly out of China, where we've had 1.5 billion people locked up for the last 2.5 years.

Now we don't expect China to open overnight. But over the course of this year, we got a consistent message from our Chinese customers that the market won't open this year but it will begin to open slowly after the Party Congress on October 14. And that's what we're hearing all the time.

So as we look to the fact that we have very strong demand already, very high yields for the airlines, a shortage of aircraft and a shortage of aircraft that will persist for many years to come due to various issues in the supply chain. People talk about the engine. That's one that's very obvious and as the biggest engine leasing company in the world by quite a margin, we have a greater insight into this than anyone else. I can tell you that, that is going to persist.

Air engines are going to continue to be diverted away from production airplanes and that will happen for several years. So we will see -- continue to see a supply shortage of aircraft that's going to push up residual values, which it is already doing, and it's pushing up lease rates.

The balance sheet of AerCap, despite buying GECAS and having to take the hit from Russia, we've still been rapidly delevering, and we will continue to delever as we go through the year. The operating cash flows have been extremely strong. In fact, our operating cash flows, as we look forward, will be lower than our CapEx.

So when you put those things together, the recovery is coming. There's a huge market that hasn't opened yet. We have supply constraints, and AerCap is the largest supplier -- largest marginal supplier of aircraft to the world and engines.

So as we look to the future, we see an environment that as long as I've been in the business, I haven't seen one where there are more things in our favor because we've had recoveries in the past, but the challenge would be; who could disrupt that recovery? It would be Boeing and Airbus.

They'd be the 2 that if they could hit production -- big levels of production, of course, then they can add supply to the market. That's not coming, and that won't come for years. So we're going to see the supply/demand imbalance there for a long time to come.

Here's what I spoke about in terms of the countries reopening and the pace at which it's happening. But as I said, really just to suffice to say, every market that's been open for a year, we're pretty much back to 2019. The exception at the moment will be Southeast Asia, if that market hasn't been opened for a year, and North Asia would be similar to which -- when we say North Asia, I mean Korea, Japan, Taiwan and then you have China as well, which is obviously well below. But all those markets will open, will recover, and that will put further demand up for aircraft as well.

Here, the cash flows of the business. As you can see, the durability of AerCap's cash flows throughout the pandemic and how they've grown since then. You see in the last 12 months, we did $5 billion plus of operating cash flow, that's industry-leading on a pro rata basis by a long, long way. And that's not the best 12 months that the aviation industry has ever had because we're looking at June 2021 through June 2022.

So as we look forward, we see very strong cash flow generation. We also see significant increases in aircraft values. You can see that even in the second quarter of this year, we sold 24 airplanes. And that was despite all the issues around Russia at that time when they were at their peak in March and April. We generated significant gains at that time as well. So that speaks also to the quality of the portfolio and our carrying values.

I think one thing that is worth mentioning to you when it comes to talking about carrying values, you can see the sales we print and you can say, "well, did you cherry-pick sales? We've been doing it for 15 years, and you always see gain on sale." But what did happen in October of 2020, when we were negotiating with GE for the acquisition of GECAS. At that point in time, I had to have the money available or else that was not going to be taken seriously by GE. We knew that from buying ILFC in the past, Genesis as well. You have to have the money. So when we went to the 2 banks that sponsored us, that was -- hate to mention that Doug.

Presenter Speech
Douglas Runte (Analysts)

No.

Presenter Speech
Aengus Kelly (Executives)

You have to forgive me, right? But whatever, I won't. Two other small banks down the street, anyway.

Presenter Speech
Douglas Runte (Analysts)

Thank you.

Presenter Speech
Aengus Kelly (Executives)

I said to them, I need $24 billion. I need you to take $12 billion each. You cannot syndicate it because if you syndicate it, everyone on the street will know what I'm doing. And there's no MAX, no covenants. I'll pay you $240 million, but it's my money, and there's no way out.

They said, okay, well, look, there's no vaccine and no one's flying. So well, I know that, but you've dealt with me before. They said true. So they went through every single aspect of AerCap's business, AerCap's books, the marks against those marks at the time that were available for carrying values of assets, they looked at what we were buying in GE.

And you have to remember at that time, to put $24 billion on the table, if that bond market wasn't there and they sold off by just 4 points, they were down $1 billion. So that should give you tremendous confidence in what we bought, what the state of the business was before the acquisition and the cash flow generation power.

No one has ever done more diligence on this company than was done at that time in a more stressed environment. And you'll see we're reaping the benefits of that now as you can see already with those cash flow numbers and the number of airplanes we sold at a gain.

So I talked about aircraft supply. In the business, the real things to worry about are, have you got the right assets at a good price? Do you know how to manage assets? The aircraft price is one thing, but you pay $50 million for an airplane, you'll spend $50 million on the maintenance of that aircraft over its life, mainly on engines but also on airframe.

So you have to have a platform that's able to manage that with deep levels of expertise. The other thing you need to have is a liability structure that's long-term and robust. The other thing that's out there that you can't control, as I mentioned, the supply/demand dynamic.

So what is happening out there? We have very aggressive targets for aircraft deliveries from the OEMs. If you look at the history of the OEMs, they have a wonderful history of overpromising and that generally under delivering what they're going to manufacture.

A big driver over the last few years has been the engines. The engines, when you buy aircraft, you'll do a deal with the airframer and you'll pay and then you'll do a deal with the engine guy. The engine guy will say to you, if you pay me a premium every month, whenever the engine comes off wing, I'll fix it for you. That will be part of your premium, you won't pay anything else.

And then also give you a spare engine while the engine is in the shop being repaired. Now that's a great business model when the engines go out for 8 years. You don't spend any money on labor or parts for the first 8 years. But what's happening now is the engines are coming off much sooner than that, 2 years, 3 years, they're going into the shop.

Now if you are the airline and you've had an engine and you can't find an airplane because the engine is in the shop, there's no way you're taking a next airplane from Boeing and Airbus. You're going to say drop the engines of that airplane, give it to me.

And that's the way -- that's what's happening out there at the moment. The engine guys, when they sell an engine on an airplane, they only get 25%, 30% of their cost upfront. That's the way the business model works. They sell at a huge discount and then they make all their money back by engine overhauls. They generally would expect to do 3 overhauls of an engine over the life of the asset, and that's the way the business model works for many years and work profitably. So when you're the engine guy and you say, "okay, well, hold on a second. If that engine comes off wing, I'm in the hole for a big number to the airline because I've guaranteed I'll fix it at my cost and I'll provide spare engines."

So if the airplane is AOG or on the ground because they don't have the spare engines, then they have a much bigger problem than not delivering an airplane because when they deliver an airplane, it's cash flow loss for them. As I said, they only get 25% of their cost upfront when an airplane is sold. That's just the business model. That's the way it works.

And so these engine reliability issues will eventually get fixed. There are technological marvels with the amount of fuel, the reduction in fuel burn but because of that, certain parts of the engine burn out faster, that technology will get fixed. The engine manufacturers have always managed to do it, and it will get done, but it will take several years before we're back to the type of environment we were in pre-COVID.

So we also see because of that, of course, when an engine comes off wing and goes to the MRO shop for repair, parts are needed by the MRO shop to repair the engine, those parts and that labor has to be pulled away from production engines also, further, I would say, restricting the supply of new airplanes into the market.

So as a result of all that, as I said, as the largest marginal supplier of aircraft to the world, the carrying values of our assets, the long-term nature of our liability structure, and you can see the power of the operating cash flows we generate, I honestly have not seen a more favorable environment for the aircraft leasing industry in all the years I've been in the business.

Okay. Doug, I'll stop there and take some questions.

Question
Douglas Runte (Analysts)

Terrific. I am glad you did have some slides because when I mentioned this morning that I don't have questions in advance because I make them up as I listen, I wasn't joking. But fortunately, a lot of good material there. So I'll start off with a question.

Notwithstanding keeping secrets, 4 years ago at our conference, I remember asking you about diseconomies of scale in the industry. At that time, you were just under 1,000 airplanes in terms of units. And I said at what point do you think you might get to diseconomies of scale and you threw out a number of 2,000 which probably at the time was AerCap plus someone else.

So you're now hovering about 2,000 airplanes. I'll ask the same question. Based upon your experience with integration, new teams, new airplanes, new products, how big is too big? What are the diseconomies of scale other than a CEO sleeping even less?

Answer
Aengus Kelly (Executives)

Well, on the final point, I sleep like a baby, Doug. I wake up every 2 hours screaming. But leaving that aside, look, the markets got bigger as well. And also the propensity of airlines to lease has changed dramatically. We are now 65% of the fleet by value is leased.

I don't think it will go any higher. I think like the airlines will want to own 1/3 of their fleet. So -- when we had that conversation 4 years ago, Doug, the market was a bit smaller for sure, the number of airplanes, but the propensity of airlines to lease wasn't quite what it is today. And I don't see that changing.

There's a couple of reasons. Airlines saw that, look, if you have an aircraft on lease, you can hand back capacity at the lease expiry. The biggest user of operating leasing in the world is Emirates. They own very, very little.

But over time, they said, we want to make sure that we can hand back around 15% of our seats every year like a debt maturity profile. That's the greatest hedge for an airline. Because no matter what airlines say, generally, when an airplane is there, they're going to fly it. They're going to have the crews, they're going to have the maintenance, they're going to have all the staff and machinery that goes with that. So I think in that regard, that's the thing that's changed.

Question
Douglas Runte (Analysts)

So is there a number? So I can look at numbers of...

Answer
Aengus Kelly (Executives)

Can't say, but there's a caveat, in 4 years' time, around 3,000.

Question
Douglas Runte (Analysts)

3,000? Got it.

Answer
Aengus Kelly (Executives)

I can't be -- look, I don't know. I think from our perspective now, we're very happy where we are and it's going very well so far.

Question
Douglas Runte (Analysts)

Yes, a follow-up on that. You've done 2 integrations, one quite small, Genesis, which many of us remember -- or some of us remember way back then. One a great degree larger, ILFC; now GECAS, a bit larger still. What are the lessons from ILFC? How were those applied to GECAS? What are the operating efficiencies? What are the operating challenges?

Answer
Aengus Kelly (Executives)

I think where we actually really learned our lessons was earlier on in the M&A trail coming out of GPA when we bought a Swedish business Indigo that was in Sweden, Fort Lauderdale. We really mismanaged that. We left 2 CEOs in place. We left multiple offices opened, multiple IT systems. We didn't have a clue what we were doing. We followed up that in the same vein when we bought a big parts business in Miami AeroTurbine. Once again, we didn't take any action to bring the 2 businesses together.

So expensive lessons were learned. But when it then came to ILFC, we said, right, you just make the decision and move on, particularly around systems. Our IT systems are an excuse for 2 cultures to coexist. If you have 2 IT systems, people will say, I cannot change the way I'm doing things because I have to do it because of the system. That's an excuse for countercultures to build up in the organization.

So you have to be -- you have to -- we were very lucky in the case of AIG and GE, both were great partners because they had a significant equity stake in the business. So they were very facilitating in helping us identify the IT systems. You couldn't do anything on the commercial side of the business, but we were never worried about that. It's in the nuts and bolts, policies, procedures. That's what a good company is built on. It's not gone out doing flashy deal-making. You come from the basics up.

And so that's very important and then make decisions on people quickly get it out of the way. I thought years ago that I was doing people a favor by keeping an office in Amsterdam opened longer than I should have because I felt I owed it to them. That was a terrible mistake. They weren't happy, they were frustrated.

And with hindsight, you should have just looked if you're going to -- you're going to cut something off, cut it off sooner rather than later. We've never looked back and said to yourself, gee, I wish I hadn't -- I wish I've waited 6 months before I've taken that -- those unfortunate actions.

You've got to move quickly and get on with it and then make sure everyone is aligned and it's very clear how we reward people in the company, what you get paid for. You don't get paid for showing up. You get paid for making a difference.

Question
Douglas Runte (Analysts)

I'll turn it over to Hillary, my equity research colleague to ask a question. You're a public company, not only a very large debt issuer. So Hillary?

Question
Hillary Cacanando (Analysts)

So you mentioned -- you talked a lot about engines. So I would imagine you're seeing strong demand for your engine leasing business and your SEC division. Could you just kind of go over your strategy for your engine leasing side of the business as well as SES? I mean is that kind of an important division? Or is it just kind of a small piece?

Answer
Aengus Kelly (Executives)

No, it's a very important division. It does give you like a unique insight into what's happening into the global aviation market. We're at 1,000 engines, give or take, between SES and our own internal leasing business. And so that's been a very attractive business. We have a very strong position in it. I think we're 3x our nearest competitor there in that business. And it's one that the engines, your -- oftentimes, you're actually leasing to the manufacturer because then those assets go into the pool to support the manufacturers flight-hour agreements with airlines.

And so you don't have a concern on the credit front and also on the return condition of the assets. They're generally very strong because they're returned by the manufacturer in their condition.

Question
Douglas Runte (Analysts)

If I could ask a question on the strength of the market given your pervasiveness in the market, you know more than just about anyone or anyone. You talked about the strength of the market, but I'm wondering if you can be a little bit differentiated.

The strength of the market for new versus old, narrow versus wide -- and I'll probably have a follow-up question on wide-bodies and response.

Answer
Aengus Kelly (Executives)

Sure. The airlines know the problems with Boeing and Airbus. So what are they doing about it? Like I said a lot of things there. What's actually happening on the ground? So 40% of our sales -- of aircraft sales are to airlines. That's unprecedented.

It would have been 15% pre-COVID. So why are they buying airplanes? They know that the production issues are long-lasting. And they didn't envisage getting out -- they envisaged getting out of 320, 737s, 330s much earlier than it's happening.

So now they're buying airplanes that are, say, 17, 18, 19 years of age, they're going to keep them in the fleet then for 3 or 4 years. And they buy them because at that point, the return conditions, the cost of it, it wouldn't be worthwhile trying to return them to us.

So that's one very tangible thing we see. The other thing we see is airlines are extending leases in greater numbers than they were pre-COVID and much further in advance than they were as well. So that's what's happening. Now it does vary between asset types.

Look, we didn't see the neo lease rates come down that much in COVID , and they came back pretty quickly. We've seen a very strong recovery in the MAX lease rate, the MAX 8. It's a great airplane. We've seen very strong demand for the assets. And we've seen -- where we're now, we're almost at parity with an A320neo in terms of the lease rate. But we've always said to it that the key in this business is -- and if you remember, Doug, we used to put up these charts where I show the barbell approach to our portfolio that if you're buying airplanes -- there's nothing wrong with an old airplane, nothing at all.

If you have a well-bought 18-year-old airplane, and you know that there's a demand for that aircraft for the next 7 years, that's perfectly fine. It's a good investment. If you buy a 4-year-old airplane like let's say you buy a 4-year-old 777 or 330 or 737, you're going to get into a lot of trouble because that airplane will be replaced by 2030.

And so that's where the value gap, I think, will be. And you saw us every conference here, we'd show you how the portfolio avoided those aircraft that are built, say, 2014 to 2020 of the older technology.

Because of your value compression, where no one sees the difference really or any material difference between one that's 12 years old or 16 years old. You don't see much of -- you don't see the gap in the lease rates that will be in the value you paid for the asset.

So -- and that's certainly proving it to be the case now. We see a very strong mark in the neos to MAXs. We saw good recovery in the 330neo, the 787 market is very strong. It was the first widebody to recover. Again, look a great airplane, the 787-9, but it's going to take a long, long time before we get back to the levels of production we had, it will be I don't know, could have years and years into the future.

And on the 330neo as well, I don't see Airbus getting above 4 months maybe between now and 2025. Some point they might. So those dynamics are out there. And that's where we are.

Question
Douglas Runte (Analysts)

With the acquisition of GECAS, you gained access to a very interesting freighter conversion program for the 777-300ER, which I think many of us in the industry, including Boeing for a long time thought never could be done.

Wondering if you could talk about that. And I guess the good news is there's demand for converted freighters is the bad news that 10-year-old 777s were never supposed to be converted to freighters.

Answer
Aengus Kelly (Executives)

You never -- I mean like if you're putting a 10-year-old 777, it's like that's extended portend stuff like the banks might do with the bad loan. Just take your [ hit ]. You can never afford on a 10-year airplane to stick it into the 777 conversion program. You're never going to get paid back.

That's just avoiding an inevitable charge that you bought the assets for too much when you shouldn't have bought it. The ideal age for a converted airplane, you're in the high teens, 20 years of age, maybe high teens, then you justify it.

The 777 conversion program has gone extremely well. We own half the actual program. It's not just that we have the stuff, we actually own half the industrial program with IAI. We put up the seed capital for it, I should say, GECAS did.

And they've learned that because GECAS was such a big player in freight for so many years. They said, look, we're not actually just going to be a customer of this, we're going to own half of the program. And so that's been a good investment so far.

I mean we've yet to see all the payoff come. But we have leased now 19 of 20 firm positions on the 777 program, which is a very strong endorsement of it. The thing is, on the freighters, it's like -- a human cares if they stop -- to make a stop going somewhere. The freight doesn't care if it stops at 3 in the morning in Kazakhstan, it's irrelevant.

So the benefit of having super long-haul capacity on a freighter, all the cost that's required to get that fuel up in the year, yes, it's a more fuel-efficient point-to-point. But you spend an awful loss to fuel up a very large heavy freighter that's designed to carry very heavy goods. The 777-300ER can go an awful long way.

And as I said, the freight doesn't care if it stops at 3 in the morning or stops in the middle of nowhere. So that's very different when you look at the benefit of fuel efficiency on a passenger aircraft versus a freighter aircraft. And that's, I think, one of the reasons why we've seen such tremendous success with the 777 freighter.

Question
Douglas Runte (Analysts)

I'll ask one last question and then turn it over to Hillary to conclude with the question. I'm not going to ask you about your Russia insurance policy or a potential lawsuit filed in London, fair disclosure there. But broadly are there lessons from Russia, that the industry or you have taken?

And on the negative side, what are the insurance carriers doing now in terms of rates and specifically exclusions our investors now going to be forced to take risks that before might have been insured away, particularly low risk.

Answer
Aengus Kelly (Executives)

I can't comment on the insurance policy itself. As regards Russia, how many countries are out there that have the land mass size to actually utilize the fleet like 99% of the world's countries you fly over them in 2 hours. So it's a bit different in fairness in that regard.

In terms of the insurance premiums, yes, they're going up. Are they a material cost to our business? Every cost is important, but is it something that you're going to have a situation where you have a lack of coverage or it's going to be at a cost that's prohibitive to the business? The answer to both is no.

Yes, we will see some insurers leave the market just like we did after 9/11. But we will see people come back into the market as well. So for sure, there will be an increase in premiums, but that's not a cost item versus the scale of the business or any leasing company, I would say, that will have a material impact on the bottom line.

Question
Douglas Runte (Analysts)

So the breadth of the portfolio is still large -- excuse me, the policy is largely the same.

Answer
Aengus Kelly (Executives)

Yes, you've got to pay more for it, Doug. You got to pay them off or it.

Question
Douglas Runte (Analysts)

So I'll turn it over to Hillary for a perhaps concluding question or 2.

Question
Hillary Cacanando (Analysts)

Yes. So I get a lot of questions from investors asking me about what happens if there's a recession in Europe and the U.S. and other parts of the world, obviously, your business model is based on long-term contracts. It should be more resilient. But investors are still very skeptical. How would you answer that question?

Answer
Aengus Kelly (Executives)

Sure. Well, I mean, they've seen us go through an awful lot of recessions. And no leasing company has ever gone away. They all come through it. It's a very robust model. Why is that?

People confuse investing in an aircraft leasing business with investing in an airline equity. There is no comparison at all in terms of the risk profile. We could all here today, I could do an IPO in this room to start up an airline here in New York, we could be off to the races.

Question
Douglas Runte (Analysts)

But we need pilots.

Answer
Aengus Kelly (Executives)

We need pilots. Let's assume we get the pilots. And then we're doing well for 2 years. We get 20 or 30 airplanes, Spirit and JetBlue get their antitrust approval, then they blow us away. The equity is lost, everything is gone.

But the owner of the airplanes picks them up and moves them to Sydney, Johannesburg, Memphis, Buenos Aires, Madrid, doesn't matter. And that will be done in a matter of weeks, months. There'll be some friction cost but there'll be a couple of months of default, okay? Maybe the lease rate could be $10,000 lower. It could be higher too, if the market is better.

So credit has never been a driver of aircraft leasing performance. Airline credit has never been a driver of this industry's performance, never happened, and it won't be the case. We'll have a recession. We have a few guys fall over, big deal. I'll have my security deposits, my main reserves. I'll have a few months of downtime of an aircraft, but then I'll move it on to someone else.

So at the moment, what is the main headwind out there? It's no longer fuel. The price of a barrel of oil has come down a lot, but what's actually come down by just as much as what we call the crack spread which is the refining cost of WTI or Brent into JET A-1. That's come down significantly.

The issue out there at the moment would be the stronger dollar. And that is a thing in the near term that might knock a few airlines over, but that's not material. It never has been. And anyone that confuses airline credit with the health of an aircraft leasing -- a well-run aircraft leasing business, that's wrong. You're not investing in airline equity. You're investing in an asset that can be moved rapidly and efficiently to any part of the world in a very short period of time.

Question
Douglas Runte (Analysts)

I want to see if there are any questions from the audience. We have a very nice crowd here. We actually have 250 seats in the room, if you can believe it. So I apologize to the standees. But [ Richa? ] We're front-running clients again. Are there client questions? Okay. [ Richa ], always a thoughtful question, former research analyst.

Question
Unknown Analyst (Analysts)

It's a quick one. So you talked about how now 65% of aircraft globally are at lease, I believe, that number used to hover pre-COVID more around 50%. Like do you think 65% is a new normal? Do you expect it to trickle down over the long term? How are you thinking about that?

Answer
Aengus Kelly (Executives)

I never thought it'd get to 65% but it has. And certainly, by value, it's there, obviously. I do think airlines will want to own 1/3 of their aircraft. The other is the competitive landscape as well, of course, look, our big competitor, or group of competitors over the last 8 years have been the state -- the leasing companies of state-owned Chinese banks.

They are retreating from the global aircraft leasing industry now for 2 reasons. One is, of course, the pressure that the Chinese economy is putting on those state-owned banks, and they're being told now you have to support the domestic market.

So over time, that will mean, of course, look, we have less competition on most of the world in China. That will be their focus. So I expect that our presence in China will come down -- it is coming down. That's been a fact over time. But that competitive landscape has changed. Those very large banks, I don't believe will be the competitors they were over the last 8 years.

Question
Douglas Runte (Analysts)

So one last question. There's one over here. Hold on. Hold on. Another...

Question
Unknown Analyst (Analysts)

No, we're front-running clients again, Mike. Okay. Is there a client question? We love our clients. We like when they ask questions. Mike, brief question, please.

Question
Michael Linenberg (Analysts)

All right. I'll try to make it short. Look, Gus, I mean, your model is like you showed the numbers before, I mean it's, call it, recession-resistant. I'm not going to say recession-proof, but I mean you've experienced a lot of crises over time.

As we look out over the long term, I mean, what is the biggest -- when you think about sort of long-term threats? And what I'm getting to is on climate and ESG and the like and some out there basically saying that in order to hit some of these mandates and the Paris Accord that, over time, we're going to have to see less people flying.

Would that -- and maybe that's the wrong conclusion, and then that's probably the debate for another time. But is that the biggest when you think about issue where all of a sudden, fleets have to get smaller and flying going the other way? I mean, is that what upends the model? Or is that just completely ridiculous thinking on my part?

Answer
Aengus Kelly (Executives)

I don't think so. I think look at what humans wanted to do after they were locked up. The planet was locked up. What did it want to do most afterwards. It wanted to travel. It wanted to see the world. I don't think humans will give that up.

It's discovering the world you live in, connecting with other people. Economic growth. It comes from people being together. Just look at the room here. We're not Zoom'ing anymore. So I don't think that will be the case. I do think, to be fair that over time, there will be a push to find alternative technology.

But we're not going to see a propulsion system for a large commercial aircraft that runs on anything other than hydrocarbons before 2050. That's also what the CEO of Boeing said. And I have fairly good insight to that because being now cousins with General Electric, we see what they're developing. No engine manufacturer today is working on developing an engine that doesn't focus on reducing the amount of gas that it's burning.

All the engines technology they are working on, that's what it's on reduction of fuel consumption for large commercial aircraft. Maybe in 30 or 40 years' time, you might get there. But the truth is the energy density that you get out of hydrocarbons can't be matched by hydrogen or anything like it.

So I don't see it happening, but I see things that along the way. We'll say we've got to use more SaaS. That takes a lot of a lot of investment. But the engine guys, that's the key. And can they continue to make the engines more efficient?

And I'm sure they will, but no engine is in development now. And for an engine to be in development now means its entry into service is probably the 2030s. So I say it's got a 15-, 20-year run, you're into the 2050s.

Question
Michael Linenberg (Analysts)

That's the technology. Where there's a will there's a way.

Question
Douglas Runte (Analysts)

Terrific. I have a zillion other questions. I think Hillary does as well, but we need to be cognizant of our schedule and your schedule as well. So Gus, thank you, as always, for the insightful thought-provoking comments. Appreciate it.

Answer
Aengus Kelly (Executives)

Thanks very much, Doug.

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