AerCap Holdings N.V. (AER) Earnings Call Transcript & Summary

Good day, and welcome to the JPMorgan Industrials Conference 2020 Presentation by AerCap Holdings N.V. CEO, Mr. Aengus Kelly. I will now hand you over to the hosts of the conference, Jamie Baker and Mark Streeter of JPMorgan. Please go ahead.

Good day. Thank you for joining us on day 2 of the Virtual JPMorgan Industrials Conference. Changed things with this format, so we're hoping to keep the experience today. We're extremely grateful for everybody that's listening on the webcast and to the team at AerCap for agreeing to this somewhat clunky format. Mark and I -- Mark Streeter and I will be moderating the Q&A after some of Aengus Kelly's prepared remarks. Obviously, if you're on the line and you'd like us to ask, please don't hesitate to e-mail us. Let me turn it to Joe to cover the safe harbor language, and then Gus Kelly, CEO of AerCap, will be kicking things off. Joseph?

Okay. Thank you, operator, and thank you, Jamie. Before we begin today's call, I'd like to remind you that some statements made during this conference call, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. AerCap undertakes no obligation, other than that imposed by law, to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call. This webcast is open to the public and will be archived for replay on our website at aercap.com. I will now turn the call over to Aengus Kelly.

Thank you, Joe. Jamie, before I start, can I just check the sound quality? Because when you spoke, it was poor. Can you hear me clearly?

Gus, I can hear you clearly, it's Mark. And what we'll do is, I'll handle the Q&A. Jamie's line, for some reason, it seems like we have an issue. So you've got Mark here. I think you can hear me clearly, and we hear you loud and clear, Gus. So go ahead.

Perfect. Thank you. Well, Mark, Jamie, thank you very much for hosting this under very difficult conditions. I think it's a very important thing to go forward with, and good morning to everyone on the call. Today, there are 4 key topics that I want to address. Very importantly, I want to address them with facts, not unsubstantiated projections of the future. First of all, air travel always bounces back from dips in demand or significant falls in demand. AerCap is the global leader in aircraft leasing and is now, by some distance, the largest aircraft leasing company in the world with capabilities to match. We have a strong liquidity position and a strong track record of value creation. Now let's talk about the resilience of air traffic. This is the slide heading, air traffic -- air travel growth is resilient. On this chart, we have highlighted the various crises that have affected the aviation industry over the course of the last 40 years. From the oil crisis, the Gulf crisis, 9/11, SARS and the financial crisis. None of these huge events stopped the structural trend of the number of people traveling, doubling every 15 years. Yes, they did have a short-term impact on demand, but it was not anything that derailed that structural trend, and I do not believe that the coronavirus will derail that structural trend of air traffic doubling every 15 years. Yes, of course, the coronavirus is currently impacting traffic. That's a given. But I don't believe, as I said, that the long-term structural growth of aviation will change because of it, and it's very important to remember that when you are looking at the aviation sector. Now that's the history, and of course, many of you are asking, what's happening now? Is it different? So what I want to show you is what is actually happening right now. So there are 3 major markets in the world today: you have China, Europe and the United States. China, of course, is the first of the major markets to deal with the impact of the coronavirus, and again, as I said, I want to deal with facts rather than unsubstantiated projections of the future in this presentation. So we track very carefully all aircraft movements in China every day. So here are the actual number of scheduled flights for every day over the course of 2020 in China. This data covers all domestic and international flights in the Chinese market. We started the year on January 2 with 14,631 flights. This climbed to 15,885 flights on January 23 as we approach Chinese New Year. Then the concerns of the coronavirus took hold and the number of flights began to decline and troughed on February 20 at 4,062, certainly, a very significant decline. Since then, however, we have seen a steady increase in the daily number of flights. And on the March 5, it had increased to 8,080. The key point here is that people are getting back into aircraft. Once consumer confidence returns and safety of travel, people will get back on aircraft, just think of your own behavior. Now yes, yields are low. But as I said, the crucial point is that traffic does rebound, and here is the hard data behind us. Now it may take longer for Europe and the U.S. to contain the coronavirus. But in the end, they will be able to do it, I believe. Now I also want to talk about what's actually happened to AerCap during this period. As I said in our earnings call, we were entering into deferral agreements with various Chinese customers. Our Chinese customers have been customers for over 30 years. They will be customers for the next 30 years, and in that time frame, China will become the largest aviation market in the world. So we are going to work with them. Since the start of the year, we entered into deferral agreements that represent less than 3% of our total annual lease revenue. This gives context to what we have actually done. We would expect the vast majority of this amount to be repaid by the end of the calendar year. As I said, this gives you actual context of what has occurred in one of the major markets in the world so far as it went through the trough and is starting to show signs of recovery. Now I want to turn to AerCap itself on the next slide and how are we positioned to deal with the coronavirus. At AerCap, I have always told you that the balance sheet comes first, and I want to highlight AerCap's current liquidity position. We have $28.2 billion of unencumbered assets. Yesterday, many of you heard from airlines that have estimated values of their unencumbered assets. Some of these assets may well be off-balance sheet or intangible assets. The number I just quoted of $28.2 billion is made up of hard tangible assets. This is the net book value of our unencumbered aircraft, and you can have confidence in these values because over the course of the last 15 years, every year, you have seen that AerCap has been able to sell assets at a gain on sale. So these are real values, not estimates. Secondly, we have over $8 billion of liquidity, and we expect to generate over $3 billion of operating cash flow this year. That takes you to almost $40 billion of potential sources. Against that, this year, we have $3.5 billion of CapEx and $3.5 billion of debt maturities for all of 2020. Now what I also want to mention and focus on is the diversification of AerCap's funding sources. We have always said to you that you never want to be reliant on a single funding source. Today, AerCap has the most diversified funding structure in the world. We have 120 active banking relationships that we are transacting with and borrowing money from on a consistent basis. This diversification of our funding sources is a significant risk mitigant for AerCap. Now turning to the asset side of the business. There is no other leasing company in the world with greater lessee diversification, as you can see here. The diversification of our customer base is another very significant risk mitigant. This has been demonstrated by us time and again over the last 15 years. And now looking at how those risk mitigants have translated themselves into aircraft utilization, what we have shown you here is our fleet utilization for the course of the last 10 years, going through several crises. The low point of utilization was 97.6% when oil hit $145 a barrel. This is a very different situation today with oil in the low 30s. The scale of AerCap's platform and its capabilities are unmatched, and this is another key risk mitigant, and one you can see evidence of from the historical utilization rates on this chart. Now during these crises, we've had to deal with airline defaults as we do every year. On average, credit costs have been approximately 1% of lease revenue for the last 10 years. I am sure that in 2020, we will have defaults like we do every year. And I do think that the default level will be higher in 2020 than it was in 2019. But as has been demonstrated by AerCap time and again, we have a platform that can deal with defaults better than anyone. In addition, these defaults will cost money, and I believe, probably more than 1% of lease revenue in 2020, that has been our average. But I do not believe that the cost of these defaults will materially impair the long-term profitability of AerCap. Now I also want to give you some actual data on what is happening in the market, at least for AerCap. This is because I'm sure some of you are asking, are transactions getting done? The answer is yes, they are. On this chart, we show you the actual number of aircraft leases, aircraft lease extensions, aircraft sales and letters of intent that we have contracted or have entered into, in the case of letters of intent by month in 2020. As you can see, the pace of activity is reasonably even. Please bear in mind the March transaction activity only covers the first 10 days of the month. From this chart, you see the capabilities of AerCap and the strength of our platform. So far this year, we have executed over 80 aircraft deals, more than one a day, even in this March, and this also shows that airlines are still active. Again, it also shows the unrivaled scale and capability of our platform, which is of paramount importance. Now as we look to the future, we have over $40 billion of contracted revenue. Our lease rents are 97% contracted through 2022. Our average lease expiry is the third quarter of 2027, and 58% of our fleet in new technology aircraft. That is the most of anyone in the industry or in the airline business. Mark, thank you very much. With that, I'm delighted to take any questions you may have.

Okay. Great. Thanks, Gus, and we've got a lot of questions coming in on the line here. So let me start running through them. By the way, can you hear me okay?

Yes, we can.

Okay. Great. Sorry about that at the beginning with Jamie there. Telephony from Katonah, New York, is not as good as Derry and Connecticut, I guess. We're both working from home, obviously. Okay. Number one, on the balance sheet, Gus, you say the balance sheet is paramount. Are you currently buying back stock? Or have you suspended the share repurchase program?

Yes, we pulled it back to the minute.

Okay. And I think a lot of people are going to be glad to hear that right now, given the way the debt markets are reacting. You had mentioned that less than 3% of total annual revenue are -- can be allocated to the deferrals that have come in. Are those deferrals just from China? Or have you seen them starting to -- and is that number a just China number that sort of less than 3%? Or does that include any other areas? And can you talk about maybe the cadence? As the virus has spread, have we started to see deferral requests coming from Europe, for example?

Yes. And that's why I want to deal with what's actually occurred and just isolate China as one of the 3 big markets. And so that number relates to the Chinese market, that's all of Greater China, and we are seeing it move to Europe. And so the cadence is similar to what we saw in the Chinese market.

Okay. Now you had mentioned, just sticking to facts and so forth, and it sounds like you've had a chance to listen to some of the airline presentations yesterday. The U.S. airlines that presented at our conference, maybe you read the notes that Jamie and I put out, I hope everyone on the phone was able to catch those. And probably the most dire forecast that was put forth was that of United, where they discussed sort of revenue being down 70% for April and May and sort of a cascading sort of forecast where we would end the year sort of down 20%, but it was a very, very significant revenue hit. Now I'm just sort of wondering if you have -- have you run similar cases or models? Or sort of trying to project how bad it could be? And what that might mean for AerCap and for some of these numbers? I mean you mentioned the 1% of lease revenue typically that you have in terms of bankruptcies, you said it will be worse this year than last year. Yes, I'm just wondering, Gus, if you have any observations on sort of what United put out there yesterday because it was a pretty dire scenario that they're working with and trying -- and how they're trying to manage their liquidity.

Sure. Now I want to say a couple of things, and that's why we wanted to put up because I knew this question will come. Let's look at actuals. So if I could ask you to turn back to the China impact so far in your slides, what you'll see there, and this is why I put it up, you look at what did happen. You went from 15,000-odd flights down to 4,500-odd. So what you did see for a period of time was a drop that was commensurate with what United said in China. Having said that, what we have also seen in the time frame since then, a gradual recovery as consumer confidence in safety returns. So Mark, what -- I'm looking at here is what's actually happened. Yes, there was very significant drop in a huge market, that's a fact. What's also very true is that once the traveling public were of the opinion that the virus is under control, which it now is in China, they return to the skies. Yields may be lower, that's for sure, but it will occur and it is happening. Now in the case of an airline, you have to remember, they see their customers over the next 60 days. They either show up or they don't show up. My customers are locked in for an average 7 years, and they are the airlines, and I expect the vast majority of them to be around. It's a very different customer base, a very short-cycle customer base for the airlines, but extremely different for AerCap. Furthermore, if we look at our own analysis, the U.S. makes up about 11% of our market at the moment.

Okay. And we're getting a couple of questions here. Just sort of talking about the 1% typical sort of run rate lease revenue sort of lost to bankruptcy, is that figure a gross or a net number? Meaning, net of maintenance reserves and so...

Net.

Right, that's a net number?

Yes, that's a net number.

Yes. Okay, and that makes sense. And then any comparison to 9/11 in terms of -- because a lot of people are equating this in terms of magnitude of revenue disruption and whether or not this lasts shorter, longer, et cetera. I think people are looking back to when we had that much of an impact on the industry and maybe this will turn out not to be. But it very well could be in the minds of many. So what was the experience going back? And I mean this is going back 20 years now, and even though we almost knew each other back then, Gus. Obviously, your company looked very, very different, old AerCap and so forth. Heck, you might have been with GPA back then, right? So maybe just talk about what the industry experienced back post-9/11 and how that might compare to today?

Sure. And that's why we put it up. If you go to the chart that shows the various crises, we showed what happened because I want to just deal in facts rather than people saying, what happened? So -- sorry, the other chart, where we go back further, we go back to the '19 -- the air travel -- resilience of air traffic growth. So what happened was, there was a collapse of traffic, particularly across the Atlantic and domestic U.S. at that time, and at that time, the U.S. was a much bigger proportion of the global market than it is today. Very different proposition entirely. Now as I look at it today, and again, that's why I wanted to show, first of all, the reaction to all these crises. There was a very sharp drop initially, attributable to each of these events, be it 9/11, SARS, financial crisis, et cetera. The traffic always came back. Now so far, what we have seen here, again, looking at one of the 3 major markets, is the traffic has restarted. So if Europe and the United States can contain the coronavirus with the same effectiveness that the Chinese were able to do, I take the point that it may well take us longer to implement the types of things that may need to be done. Then the time frame that we're talking about here is not going to be multiyears, like we saw from post-9/11 or the Gulf crisis or the financial crisis. So that, as I look at it, I don't see anything that's going to change the long-term structural trend. The companies that will be most exposed are those that have limited operating platforms, for sure, or those with limited liquidity as well. And also, it's worth noting that the airlines going into this challenge are better run, I would say, and stronger balance sheets than they have had going into any of the other challenges that are on this chart. I'm not underestimating the challenge ahead as clearly as I said, when I -- that's why I gave you the real stark data of what occurred in China and how far it went down before it hit the bottom. But also, in this industry, you do have to look forward because people want to travel. Think of your own behavior. When...

Yes, Jim. Go ahead.

This fire is contained. You will want to get back on an airplane. You will want to go away for a few days or break or catch up on business travel, but it's going to take a bit of time.

I mean we definitely agree with you about the catch-up factor. I think that I'm getting a couple of questions here, people are wondering, how much of those daily China scheduled flights are simply because the government told the airlines, get those planes back in the air, and what a revenue number look, and you had already mentioned, of course, that yields are down and so forth. So revenue might not necessarily track this scheduled flight information. But ultimately, I guess, from the lessor perspective, you care about takeoffs and landings, right? Ultimately I mean, revenue, obviously, is what pays the bills, though, right? So you have to watch that interplay. I'm just wondering, do you have any sense for sort of the revenue data.

We have load factor information. You could see that climb as well up towards the mid-50s, up towards 60%. The key thing here, though, is if you are concerned about the near term, look at the liquidity of the company you're dealing with. So look at AerCap's liquidity, almost $40 billion of sources, unrivaled in the business. Now if you're concerned about the long term and those people asking you questions, well, is Gus just taking flight to the Chinese? Government is just subsidizing the airlines and there's no one on those flights? That's not the case because load factors are there. As I said, yields are lower. But the most fundamental thing -- the most fundamental thing is consumer confidence. People aren't confident. It doesn't matter what fare it is, doesn't matter if someone is paying you to get on the airplane. You are not going to get on the aircraft if you don't have confidence in it being safe to travel. So that really is the key measure here, not the fact that the yields are lower, which they are, and they will be, for sure, coming out within Europe and the U.S. But that really is a fundamental thing. If you're looking at the short-term concern, look at liquidity and look at the operating capability of the platform of the lessor. And if you're looking at -- concerned about the longer term as a signpost, not saying for sure to be replicated with Europe and America, but are people actually boarding aircraft in China as confidence is restored? And the answer to that is yes, they are.

Now maybe you can talk a little bit about some of the dynamics with supply and demand from the perspective of everything going on with the MAX and so forth. And what I really want to tie it into is that when a lot of investors, of course, will ask us to run the Ascend or the -- whatever data is out there that looks at exposure to some of the watch list airlines. And because AerCap is so big, you show up on a lot of these sort of rosters here. So Norwegian, HNA, et cetera, you're going to see that AerCap, as you know, has exposure there. So maybe can you talk about the watch list? Can you talk about how if bankruptcies are worse in 2020 versus 2019, last year, the industry was sort of saved, if you will, by the MAX, and it allowed for all of those bankrupt aircraft to be pretty efficiently placed. Just wondering what your observations are about how that plays out in 2020, and maybe you can talk about the Norwegians and the HNAs of the world and who else might be on that watch list.

Sure. Well, let me talk about supply for a second into the sector. Again, this year, I mean, if I just take, again, factually, it is very difficult or it has been nigh impossible, of course, to deliver an aircraft to airlines in the affected countries in Asia over the course of the first couple of months of the year because they just simply couldn't go there. So that has an impact on supply as well, Mark, and that will continue, I suspect, throughout the course of the year. That -- I think deliveries, obviously, will start sliding to the right just because of the fact that, if you're -- you kind of travel from the country, you just can't take it. In terms of individual exposures, I'd always caution you against using appraisers. I suppose they're the best information you have, but rarely accurate. They will not necessarily know which airplanes are with which lessor because the transaction data, for example, in HNA, AerCap has moved out more airplanes than anyone else has moved out of there at over 15-odd airplanes in the last 18 months. We still have a significant exposure to HNA, and we have a significant exposure to Norwegian, as we do to many others, but we do deal with them. I won't comment on individual airlines. But what I would say, and I want to be very realistic, is that I do believe we'll have more bankruptcies and defaults in the airline business this year than we did last year. Do I believe we'll get to a number that's reminiscent of prior crises? Maybe in a given year, but the prior crises lasted longer, whereas here, if we can find an ability to contain the virus, it may well be that we have a shorter impact here. And I would say that, look, like I said to you, we will have more defaults. We'll have a greater impact, but look at the income of AerCap of $1 billion a year. Our revenue on average is contracted out to 7 years out. So we could withstand many multiples of 1% without materially impairing the long-term profitability of the company.

Can you maybe talk a little bit about the dynamic with the OEMs, Boeing and Airbus specifically? And let's continue sort of with the MAX here. The FAA is perhaps requiring some wiring bundles to be repositioned or blanket it or whatever. Are you of the view now -- we've sort of been joking with investors or commenting, joking is the wrong word, that it seems like everyone's probably saying to the FAA right now, "Do whatever you need, take your time, we don't necessarily need those airplanes right away." Is there -- I'm just sort of wondering what your approach is to the MAX right now. Have you talked to Boeing about slowing down once they are in a position to deliver the MAX? Are you in a hurry -- as much of a hurry as you were 6 months ago to get those planes? Have you seen any customers that you were looking to make placements with sort of say to you, "Hey, we don't mind sort of jumping to the back of the queue?" Is there any of that going on?

Look, I think when it comes to the FAA, the obligation, of course, they have and their raise on that is safety first, although I think they'll be dual mandates. I think the second mandate is the promotion of American aviation industry. I think that's actually the case of a dual mandate. But anyway, what I would say here is that I don't think the FAA will listen to any airline today and take your time. They are going to get this out as quickly as they can in -- but meeting the safety requirements. I think that is what they will do. These airplanes will come, that's going to happen. I'm sure there are airlines out there who would say, "Look, at the moment, do I want to take an airplane in the next 30, 60 days? No, I don't." I mean that's painfully obvious in parts of the world. On the other side, though, Mark, and this is to bring the other side of the equation, we are currently in the final round of 2 RFPs for A320neos, 1 for a 15 aircraft placement and 1 for a 3 aircraft placement for airplanes to deliver in 2022 and 2023. And those campaigns are active right now, and we were sending out our best and final offers yesterday for those campaigns. So there is a balance to it. I think, of course, look, if you -- don't think that the next 60 or 90 days can be replicated, I believe, for the next 720 days, and that's why I wanted to give you a go back to the actual data on China as well. And I'm sure there'll be discussions with Boeing and Airbus, where airlines will say, "Look, hey, well, firstly, I just can't come I mean, I may not be allowed into the country. So until that happens, I'm not taking an airplane." And then they might say, "Look, can you push it back 30, 60, 90 days?" I'm sure those discussions will happen, and I'm sure they'll be worked out. But these ultimately are 25-year assets. Airlines don't change a 10-year fleet plan on the basis of what's occurred over 30, 60 or 90 days. It will take them much longer than that to adjust that plan. And furthermore, don't forget, they'll need the acquiescence of Boeing and Airbus too. So what airlines want and what they're able to get, and the cost of getting that, are 2 very different things.

Yes. No, I think that's a very good point. And just wondering, can you comment a little bit about the twin-aisle market trends versus the single aisle. Even before coronavirus and everything we're going through right now, clearly, I think it was well acknowledged that the twin-aisle market was a lot weaker. Just wondering if any of the events -- recent events year-to-date change your view on that and how you're sort of thinking of your own portfolio mix between single aisle and twin aisle.

Sure. I mean there's no doubt that the twin-aisle market requires a greater platform, with greater platform capability than many have in the industry. Now that's -- it's a different business. We bought, sold our lease to wide-body airplanes every week for the last 5 years, we were doing the same last year. We were -- given our scale and our position and the information we have that no one else has, we were able to move the portfolio over time, and I mentioned it how we did that, where the focus was being on avoid newbuild A330s, newbuild 777s. They're the ones to stay away from. Because the sun is setting on that asset type. But for the next decade, they will form the backbone of aviation. I mean if you own a 14-year-old 777, in fact, we signed a term sheet for a 2009 build 777-300ER last week, actually. And that airplane, when delivered, it'll be about 14 year -- 13-, 14-years old. It's been written down on our books. The big problem with those assets is that there's a compression, age compression. That the lease rent we get for a 13- or 14-year one is the same as you get for the aged year 1 or the 3-year one -- or not quite the 3-year one, but you don't get the premium when the asset class has a finite life left on it. And so we have been avoiding any of those assets since 2011, and we've been selling out of them. But on the same token, what we've also seen a couple of weeks ago, we signed leases for 2 787-9s as well. So you have a very big powerful company behind the wide-body placement of AerCap, which, of course, no one else has. So far, we've been able to deal with this. Like anything, though, if we get back a bunch of airplanes to -- from a bankruptcy, am I going to get the same lease rent as I got before the bankruptcy? No, I'm not. Even after I adjust for interest rates? No, I'm not going to get the same lease rates. Because interest rates, of course, are much lower, which is a big difference. But do I think, as we look out, that the impact of returning wide-bodies to AerCap, I can't speak for anyone else in the industry. But do I think that it would have a material impact to the future long-term profitability of AerCap? I don't.

Do you want to see Boeing and Airbus cut back wide-body, twin-aisle production rates? Do you think it's necessary?

Well, they both announced cuts already. And the OEMs have a wonderful history of overpromising and under delivering production, and I never listen to what the OEMs say they're going to do. You always look at what they actually produce. You got to put yourself in the shoes of an OEM, particularly on wide-bodies. There are a few things you know for sure about your business model. You know that there's going to be demand for your product. You know that your customer base is noninvestment grade. You know that you have a huge fixed costs yourself that aren't easy to switch off. But how do you manage that when you always overbook? That's how you do it because you don't know which guy isn't going to make it. And the wide-bodies, that's particularly true. You'd be very careful on the wide-body because you configure a wide-body for our customers, Boeing or Airbus, and something goes wrong, there's a $10 million, $12 million reconfiguration of the cabin, maybe, and a long time on the ground. So I think on the wide-body stuff, which is very different to the narrows, where the narrows, it's much cheaper and it's much more liquid in the commoditized market to move them around. You can be a bit more aggressive with production because you'll probably find a home for them somewhere, which you will. On the wide, it's a bit different, and that's why I think they were -- both of them acted on their wide-body lines with the reduction in the 787 cost and on the 350 and 330neos. And I would imagine that they'll continue. If things continue, I'd say they'll probably knock that slightly, again, maybe another 1 or 2 shelves a month each of them. That's what I'd say will happen.

Okay. Great. And then there's a few more and we'll wrap up here. Outside of the natural sort of horse trading that happens as one of the largest lessors in the world with Boeing and Airbus and everything going on with the MAX, have you at all cut your CapEx or look to reschedule any sort of orders in light of the virus situation? Or is it business as usual, taking the long-term approach?

Well, there's no clear -- there's no one answer to that. Look, we're the largest owner of commercial airplanes in the world. Our value proposition to Boeing and Airbus is that we can move airplanes. We are someone you can build your production line around. We will show up. We have the money. We have the wherewithal. If Boeing and Airbus doubt your capability to move airplanes, then you're just another lessor and you pay a significant premium every time you show up again there afterwards. Be under no illusion, that's what happens. So that's something you have to be careful about. But by the same token, if an airline can't show up, which is clearly the case at the moment for certain carriers, just can't show up because of the virus, they can't get to the facilities, then airplanes get pushed out. But we've been pretty careful. If you look at the size of our liquidity, I want to go back to the fact of the $40 billion of sources, of unencumbered assets of $28 billion, operating cash flow, $3-plus billion, and our liquidity of $8 billion against our CapEx for all of 2020 of $3.5 billion. Relative to the size and capability of the balance sheet, our CapEx is a very manageable number. And so what I would say relative to our size and our capabilities and our liquidity, our order book is extremely manageable.

Okay, good. And then second one of the last 3 here. Just one question, I think it's an important one, too. People are nervous, right? They're wondering about the potential for write-downs. So when you talk about the less than 3% of annual revenue sort of in deferrals right now? 1% sort of credit losses, maybe that ticks up a little bit. Does any of that force your hand when looking at the accounting on write-downs? Or do you still get to take sort of that long-term sort of NPV cash flow approach and that we shouldn't be worried about some sort of material increase in write-downs in 2020?

So Mark, the key with write-downs, there are 2 areas where they come from. One is if you have an absence of liquidity or a liquidity structure that has, on the surface, undrawn lines and capability, but you have covenants or material adverse change clauses in your debt. Unlike pretty much anyone else, AerCap came through 2009, '10, '11, without ever having any of those issues. And it's those loan documents that everything we have is based off today. So you can take comfort there that we won't be in the position where you're forced to sell assets, and that's one area where write-downs come from, and that did happen to ILFC, where they were forced sellers of assets to generate liquidity. And then the other area is if you have to lease assets and the cash flow that you get off those assets is materially below your carrying value, then that leads to a write-off. I'm not saying you won't have immaterial write-offs here and there, Mark, you probably will. But the -- do I believe that as, again, to the scale of AerCap and its profitability, do I believe that we'll see material write-off? I don't. I can't speak for others, though.

Okay. Yes, understood. And then last one from me here and from a couple of investors as well. Moody's just changed your outlook from positive to stable. I think people were hoping for an upgrade this year to that mid-BBB level where some -- where at least a couple of your peers are. Just wondering if you can comment on the importance of sustained investment grade and that credit rating. I mean if things get worsen here in this environment, is sort of the BBB- or higher, is that sort of sacrosanct to you? Maybe just address that.

Yes, it's obviously critical and that's why I said the balance sheet always comes first at AerCap and why I outlined the huge liquidity I have. And we are one of the few companies that actually goes to Moody's for a rating, some don't. It is the gold standard. And we feel -- along with S&P. And we feel that they've taken a pause, understandably so, of course, but we were -- did a lot of communication with them coming into the year and around our 20F, and we were certainly heading in the right direction, but we would hope that would be a pause again from them.

Great. And I'm going to squeeze in one more here. We can go over a minute here. Just in -- there's been a lot of commentary from other -- from your CEO peers about Boeing and Airbus having sold too much into the leasing channel. And Gus, you made a comment just talking about how some of the weaker lessors may have a lot more problems than you in a situation like this. So is there -- do you expect some further rationalization? I know we've talked about this before, but I'm just wondering if you think it might be accelerated. Some rationalization of sort of the leasing channel. Will there be a shake up? And is there a way for AerCap to get involved in that?

Maybe, but let me just step back and be practical. Many of those entities that have ordered from Boeing and Airbus are owned by extremely large financial institutions, and they have subscale platforms, are not very capable platforms, and Boeing and Airbus know that. But by the same token, those owners to date have managed their issues internally. I think that's still more likely than not to continue. Maybe 1 or 2 of them will say, "Look, we've had enough with this business. Let's just stop growing it. Let's just sell off the assets slowly or get someone else to manage them." I think that's likely. The challenge for Boeing and Airbus dealing with these guys is they're just schizophrenic between fear and greed. The fear is that they know many of these guys don't know what they're doing, and they will struggle to place airplanes or they will panic and drop lease rates to a point where they impair the sales price that Boeing and Airbus want to sell the assets to just the same airline, particularly in the Chinese market. But of course, the greed side of them is that they're going to charge them a significant premium always just to cover for that risk and they get big chunks of PDPs out of them. So that's the thinking that goes on at Boeing and Airbus when XYZ shows up with no leasing capability and says I want 50 airplanes. And they say, "Will I give them to these guys or not? Okay, I will, but I'm going to charge a lot more than others who know what they're asked in order to cater for the risk that they may not be able to move the airplanes or they -- Boeing and Airbus may become concerned that they move at distressed levels or panic in the market, and therefore, pull down their own pricing capability, and that may become an opportunity for us, of course, Mark.

Okay, perfect. Aengus, Joseph, thank you very much for doing this. I think it was incredibly important to hear from AerCap as the industry leader, in light of everything going on right now, we're very glad you stuck with the presentation, made yourself available to investors here. Appreciate the investor questions. Sorry for Jamie breaking up at the beginning there, but I thought we had a robust Q&A, and thank you for the slides as well. I think it's very helpful, and we really appreciate the time. So at this point, I think we can wrap up, operator. Thanks, everyone.

Thank you very much.

Thanks, everyone.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect at this time.