Good day and welcome to the AirCap Holdings N.V. Q3 2026 financial results call. Today's conference is being recorded and a transcript will be available following the call on the company's website. At this time, I'd like to turn the conference over to Mr. Adi Padva, head of investor relations. Please go ahead, sir.

Thank you, operator, and welcome to AirCap's third quarter 2026 earnings call. With me today are CEO Aengus Kelly and our CFO Pete Juhas. Please note that today's call may contain forward-looking statements which involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. Further information concerning these issues can be found in AERCAP's latest earnings release and our filing with the SEC. A copy of the earnings release and conference call presentations are available on our website at aircap.com. We undertake no duty to update any forward-looking statement except required by law. I'll now turn the call over to our CEO, Aengus Kelly.

Thank you for joining us for our third quarter 2026 earnings call. AirCap delivered another excellent quarter with record performance across a number of key financial metrics. leading us to raise our full year 2026 guidance. Our results once again demonstrate the resilience and stability of the global platform we have built over two decades as a public company. Starting with our financial highlights on slide three, we delivered record adjusted earnings per share of $6.56 in the third quarter. Translating, to a record adjusted return on equity of 22%. Demand for our assets remains strong and continues to outstrip available supply. While this dynamic is supporting lease rates and asset sale opportunities, AirCap's long-term performance is driven by our ability to actively manage and optimize assets throughout their lifecycle. It is this capability that continues to differentiate our platform and underpins our strong view of the business going forward. We continue to return significant capital to shareholders in the third quarter, repurchasing $783 million worth of shares and just over 2.2 billion year-to-date, representing approximately 10% of AirCap's outstanding shares at the beginning of the year. Reflecting our performance and positive outlook, we are raising our full year 2026 earnings guidance to $20.70 per share, excluding any additional gains and asset sales in the fourth quarter. Turning to our core leasing business and current industry dynamics, while our discussions with customers focus on long-term fleet planning decisions, those that determine capacity years into the future. Higher jet fuel prices have created uncertainty for some airlines and are impacting their near-term profitability. If jet fuel remains at these elevated levels, we would expect airlines to seek proactive measures to strengthen liquidity and protect their balance sheets. Our platform is uniquely positioned to navigate challenges the airline industry faces. And in many instances, this type of backdrop can create opportunities for aircap, such as through incremental sale and leaseback activities. Today, our order book is fully placed through the end of 2027 and 80% placed through the end of 2028. And this is taking into account the 131 new aircraft added to our order book this year. Combined with an average remaining lease term of over seven years, This gives us tremendous visibility into future earnings and underscores the durability of our business model. Turning to slide four, let me begin by saying that we've continued to take advantage of the very strong secondary market to improve the quality of our portfolio. During the third quarter, we sold 70 owned assets for $1.1 billion of sales proceeds. At an unlevered gain on sale margin, of 45%, equivalent to 2.6 times book equity. Today, 83% of our aircraft fleet is comprised of new technology of Fraser Aircraft, a direct result of our continued focus on portfolio optimization for the last 15 years. Turning to the growth of our order book, you have heard me say before that it cannot be a buyer's and a seller's market at the same time. Yet, despite a highly constrained supply environment, we have significantly expanded our order book since 2024 without compromising our return thresholds. Our scale and industry relationships have given us access to opportunities that others simply cannot reach. Today, we have an order book of new technology aircraft with delivery positions beginning in 2027 that we believe will create substantial long-term shareholder value. Continuing with the theme of capital allocation, AirCap has been defined throughout its history by the balanced deployment of capital across growth, shareholder returns, and financial strength. As we show on slide five, since the closing the GCAS acquisition At the end of 2021, we have committed more than $30 billion to new technology assets, repurchased almost 40% of our outstanding shares, and continued to strengthen our balance sheet. Today, AirCap is a high investment grade company with triple B plus BAA1 credit ratings. Turning to slide six, our performance since 2022 demonstrates the successful execution of our strategy. Over that period, AERCAP has delivered compound annual growth of 23% in adjusted earnings per share and 18% in book value per share. Our superior long-term returns are the result of a platform that combines global scale, unique information advantages, Deep customer relationships and ownership of the most valuable aviation assets. In closing, this business is not simply about buying, leasing, and selling aircraft. It is about actively managing aviation assets throughout their lifecycle, allocating capital where we see the most attractive return, and using our market leadership and expertise to create value at every stage of ownership. This is what makes AirCap's earnings power durable and continues to drive long-term value creation for our shareholders. I will now hand the call over to Pete to review the financials in more detail.

Thanks, Gus. Good morning, everyone. AirCap delivered another record quarter, and I'll start by reviewing our financial results on slide seven. Our gap net income for the third quarter was $949 million, or $6.17 per share. The impact of purchase accounting adjustments was $71 million for the quarter, or $0.46 a share. That includes lease premium amortization of $23 million, maintenance rights amortization of $35 million related to maintenance revenue, and maintenance rights amortization of $14 million related to leasing expenses. The net tax effect of all these items was $11 million, or $0.07 a share. As a result, our adjusted net income for the third quarter was $1,009,000,000, or $6.56 per share. That represents adjusted ROE of 22% for the quarter. Turning to slide eight, I'll briefly go through the main drivers that affected our results for the quarter. Basic lease rents were $1,698,000,000, reflecting continued growth in our fleet and a strong leasing environment. Maintenance revenues remained elevated during the third quarter at $267 million before purchase accounting adjustments. Our net maintenance contribution, which is maintenance revenue less leasing expenses after taking purchase accounting adjustments into account, was $184 million for the quarter. As we've noted previously, maintenance contribution is event-driven and can vary significantly from quarter to quarter. Our net maintenance contribution has been particularly strong this year, which is based on a number of factors, including the timing of end of lease compensation, maintenance reserve releases, buyouts, and transition activity. We would expect net maintenance contribution to return to a more normal level of $50 million a quarter in 2027. Net gain on sale of assets was $353 million for the third quarter. The sales environment remains very strong, and we sold 70 of our owned assets for total sales revenue of $1.1 billion, with an unlevered gain on sale margin of approximately 45%. Other income was $97 million, primarily consisting of interest income and management fee income. In the third quarter, we also recognized $27 million of other income related to sales of investments. Interest expense was $475 million for the third quarter. Leasing expenses were $131 million, including $14 million of maintenance rights amortization. Income from equity method investments was $73 million in the third quarter. That was higher than normal due to income from our SES joint venture. Income tax expense was $123 million for the quarter, reflecting an effective tax rate of 12.3%. that's lower than usual due to some discrete tax items. Excluding those items for the full year, we would expect our effective tax rate to be approximately 15%. Turning to slide nine, our liquidity position continues to be very strong. As of September 30th, our total sources of liquidity were approximately $22 billion. This includes approximately $2.5 billion of cash, $10 billion of revolvers, and 3 billion of other committed facilities, as well as estimated asset sales and operating cash flow. Our sources to uses coverage ratio was 1.8 times, which reflects excess cash coverage of around $10 billion. Our adjusted leverage ratio at the end of September remained similar to last quarter at two times net debt to equity. Our operating cash flow was $1.8 billion for the quarter. Our secure debt to total assets ratio decreased to 8% down from 9% last quarter. Our average cost of debt was 4.2%, the same as last quarter. During the third quarter, we bought back 5.3 million shares for a total of approximately $783 million. We also announced a new $1 billion share repurchase program in September. As Gus mentioned, for the first nine months of 2026, We returned more than $2.2 billion to shareholders through share purchases, representing approximately 10% of the shares outstanding at the beginning of the year. In addition, we made our 10th consecutive quarterly dividend payment. We have increased our dividend each year and have paid over $500 million in dividends since the introduction of our dividend in 2024. Turning to slide 10, Following our continued strong performance during the third quarter, we're raising our full year 2026 adjusted EPS guidance. We now expect adjusted EPS of approximately $20.70 for the full year. This reflects approximately $16 of adjusted EPS excluding gains on sale. It also includes $4.70 of gains on sale recognized during the first nine months of the year. It is before any additional gains on sale for the fourth quarter. The principal drivers of the outperformance relative to our previous guidance have been strong gains on asset sales, higher net maintenance contribution, and higher other income. We generated approximately $866 million of gains on sale during the first nine months of 2026, including a record $353 million in the third quarter. Last quarter, I said we expected asset sales for the full year to be in the range of $4 to $5 billion. However, based on our performance to date and the continued strength of the sales market, we currently expect full year 2026 asset sales to come in over $5 billion. Our net maintenance contribution has been particularly strong for the first nine months of this year at $453 million. As I mentioned earlier, we would expect it to return to a more normal level of around $50 million a quarter in 2027. Other income was also higher than normal at $266 million for the first nine months of the year. In closing, AERCAP continued its strong performance with another record quarter. We generated adjusted EPS of $6.56, adjusted ROE of 22%, and gain on sale of $353 million. Today, we're raising our full year adjusted EPS guidance to approximately $20.70 before including any additional fourth quarter gains on sale. This positive outlook and strong performance to date reflect the strength of our platform, the quality of our portfolio and our disciplined approach to capital allocation. With that operator, we can open up the call for Q&A.

Thank you. To ask a question on today's call, please signal by pressing star 1 on your telephone keypad. Please limit yourself to one question and one follow-up. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to ask a question. and we'll go first to Jamie Baker with J.P. Morgan.

Thanks, everybody. So, Gus, excuse me, one lessor that was here in New York last week for airline economics mentioned that certain appraisers believe certain midlife values and lease rates have peaked a little bit more on narrow bodies than wide bodies. And I don't know, it sounds plausible, you know, Given what's happening with fuel and spirits shut down and capacity cuts and all that. But the lessoring question, Mideast based, by the way, specifically said they're not seeing that and the appraisers are wrong. We're not uniquely concerned, but I don't know, directionally, Mark and I wanted to ask, you know, which side you come down on in this regard?

Thanks, Jamie. Well, I can only talk to AirCap, and you can see in the quarter what we did with selling a wide array of assets of 70 aircrafts and generated 2.6 times bulk equity in our gain and sale. Now, that's a combination of having the right assets. We've been looking at this portfolio for 15 years, always every day. Where do we want the portfolio to be in 10 years? Not tomorrow, not the day after, not yesterday. looking at the trends where the industry is going, and that shapes our portfolio for the future. And we're highly confident that the assets we have are very well positioned for the future, and that's evidenced by the results that you see this quarter, and in fact, pretty much every quarter for a long, long time.

Excellent. Thanks for that. And then for Pete, if we could just quickly revisit financial policy, obviously, the model's working. Leverage is nicely below 2.7 times target. But, you know, any updated thoughts since, well, basically since we spoke 90 days ago in terms of tightening this maybe to 2.5 times and making a stronger argument for low A ratings? I mean, with base rates obviously up and, you know, spread dispersion increasing, it just seems to mark in me that the benefit of borrowing costs with an A rating would be, I don't know, increasingly advantageous. Thanks in advance.

Sure. Thanks, Jamie. Yes, look, we would welcome an upgrade. And I think the performance of the company in many ways, you can see how strongly we've performed over many years, would certainly merit an upgrade. That being said, we haven't changed any of our policies. Our stated target of leverage is 2.7 times. But as you noted, we've been running well below that for a while. The main driver of that really has been just the extremely strong earnings that we've produced quarter after quarter over the last year and even before that, but particularly this year. And even though we have been buying back a lot of stock, 10% of the stock so far year to date, nonetheless, just given how much capital we've been generating, the leverage ratio has continued to stay where it has been at around two times. I do think that that will increase going forward. I mean, that is our plan. But obviously, given these strong results, you know, that is depressing that leverage ratio. That's great. Thanks.

We'll go next to Moshe Orenbuch with T.D. Cowan.

Great. Thanks. Gus and Pete, as you look at, you know, the combination of the order book, which really does start picking up in Q4, the Spirit and Frontier and the other you know kind of opportunities that might arise how do you think about you know sort of capex over the coming year or two and you know how does that translate into kind of or does that translate into growth in dollars of basic lease rents?

Well I can start out with that sure sure so Moshe I mean if we look at capex for Fourth quarter, it should be cash capex should be around $1.5 billion for the rest of this year. And then 2026, around $6 billion, 2027, maybe $5.5 billion or so. And we could add to that, obviously, I mean, you've seen, particularly on the engine side, those tend to be shorter in. And so I wouldn't be surprised if you saw some additions to that from there. And then if there are other things that we can do in terms of sale leasebacks, maybe that adds to that. Obviously, on the other side, you can see some delays as well, as you're well aware. But roughly, those are the numbers that we're looking at over the next couple of years.

Great. And Mocha, I would add there, if you just step back and look at the company today, We're generating record ROEs. We are generating record cash flow. But the balance sheet is a fortress balance sheet. It's never been stronger. Two to one debt equity, high investment grade company, BBB plus, BAA1, returning massive amounts to shareholders. But rightly still, we have the ability tomorrow, if we wished, to deploy $14 billion approximately. Thank you. Thank you.

Clearly, clearly. And the other, the follow-up question that I wanted to ask also kind of dovetails into that because you've been selling a higher percentage of the fleet, I guess, at higher gains. And you mentioned that probably going to stay high in Q4. Is there, as you kind of look at the fleet and are thinking about that optimization, Is there a way to think about what percentage of the fleet you enter 2027 that could be subject to that? Is there just any way that we could sort of think about how to think about that percentage of the fleet that's up for sale in the future?

Well, Moshe, I'll have to repeat in a second. But first of all, the reason we sell assets is always with the long-term strategy of where do we want the portfolio to be in 10, 15 years' time. It's because of that long-dated thinking 15 years ago that the portfolio is where it is today. 83% focused on new tech assets or freight, and freight is the strongest part of the market of all and one that we expect to grow. But I would say sales have been elevated in the last year or two, driven in some part by Our focus on reducing our Chinese exposure, which has fallen very significantly over the course of the last four years. And I'd expect as we go into 27, 28, that those sales of Chinese assets will slow down as our exposure has reduced materially there. Pete, anything you want to add?

Yeah, I mean, I mentioned, Moshe, in my prepared remarks that we expect to have sales of over $5 billion this year. So that is an extraordinary number. More typically, we would generally guide to $2.5 to $3 billion of sales. So I would expect at this point it probably normalizes to something like that. But it really depends. And obviously, it could be higher. The market has been extremely strong, and we have been selling into that. Great. Thanks very much. Sure.

We'll go next to Shannon Dotary with Deutsche Bank.

Oh, hey, yeah, thanks for taking my question. Gus, it's hard to imagine that lease rates go up much more from here if the high fuel price environment lasts through next year. Which assets are being most impacted today? Or, you know, is it possible that the supply environment will be so constrained that lease rates can move higher?

I'd say, Shannon, where lease rates go is more a function of interest rates. Lease rates go up if interest rates go up. I can tell you that now. Any aircraft in our order book that's leased to deliver in the next two years, if interest rates go up, it goes up with them. That happens. It's in the contracts. Now, in the spot market, if you are in assets heavily focused on older tech assets, that may be a more challenging market in the near term. But where air cap is focused in the freight business, in the new tech, in particularly our engine business. We don't see that type of pressure. There'll be, you know, the odd asset here and there if we have to take them back. But that's the general cut and thrust of the business. I wouldn't say that for Aircap's asset base, as we look out over the next few years, that I would see any significant movement in these rates other than that that's driven by interest rates, apart from the odd one here and there.

Thanks. And as my follow up, one engine lessor recently noted that spare engine values could begin to come down just given the large number of young narrowbodies being torn down for engines and spare parts and that hitting the market. I mean, we're at something like over 100 narrowbodies that have been parted out. It's pretty amazing. Do you agree with this view?

Look, we are by far and away the biggest engine lessor in the world, and we We have a lot more visibility than anyone else. And I think we are going to see sustained engine demand for a long, long time to come. The key to the valuation or the demand for engines will be, can the time on wing of new technology assets improve dramatically in harsh environments? And I think that is a lump for the engine OEMs. I don't see that happening. There'll be gradual improvements, but I don't really see that happening. Harsh environments 30 years ago were a minority of the global economy. But as emerging markets have boomed, what we have seen is that a much greater portion of the global economy is focused in those countries that have harsher climates. And I really don't see demand for new tech engines tapering off. Then again, you know, if you're in certain engine types that are old technology that had a boost recently, then, you know, perhaps the statement you're saying could be true. All right. But that's not where AirCap is focused. We've always looked to the long term in the future.

Thanks, guys.

We'll go next to Ron Epstein with Bank of America.

Hey, good morning, guys. Good morning, guys. and the team. Maybe just two quick ones. As a follow-up to the previous question, what's your expectation just for aircraft retirements as we go into next year and the following year? There's some debate in the market if we're going to see some tidal wave of retirements or not. And then how would that impact you guys?

I doubt we'll see a tidal wave, particularly in widebodies. The widebody market is extraordinarily strong. We're seeing customers overhaul A380 interiors. That says everything, Ron, right there. We're at the most fuel inefficient aircraft ever built, and it is being overhauled with $25 million interior cabin spends. So that is all I can say about the widebody market. I don't think I can say anything else about how strong it is. On the narrow bodies, I think it's fair to say, all right, will we see large retirements and titling? Probably not. We will see some for sure if oil stays high. But again, Ron, as it pertains to air cap, as I mentioned, 83% of our book is new tech and it is a freight business. And our exposure to the other assets is mainly focused on the high demand, like the 737s, A320s, A330s. So from our perspective, I don't see it having an impact on us. But like everything in life, Ron, you know, you may have had guys who are out there buying different asset types, different asset quality, different maintenance standards. You know, a key really is when you're transitioning, if an asset comes back to you, if you bought an asset off someone and the asset comes back and the maintenance return condition, if you don't have the expertise to manage maintenance return, to manage the paperwork, to manage the transition from one jurisdiction to another, which is a very difficult thing to do, Then I suspect that's where some guys could get caught out because not very, very few people have the infrastructure to rapidly and efficiently move aging assets around the world. We do, of course, and we do it more than anyone.

Gotcha, gotcha. And then maybe a question for Pete. Why is maintenance revenues less, leasing impairments going to be around $50 million annualized? You guys have usually been pretty ahead of this. Just trying to understand, you know, is this a conservative view or how are you thinking about that?

Well, Ron, that's normally what we would expect over the long term to be around that number, 50 million. And if I look back at, say, 2025, we were around 200 million for the full year. In 2024, we're around 160 million. So it's in that ballpark. This year, it's been much higher. And really, that's driven by three key factors. The first is we've had a significant number of large end of lease payments on older assets this quarter, but also throughout this year. So that's contributed. Second, we've had higher buyout income. So these are maintenance buyouts that we do on leases, mostly for older aircraft. And third, we've had some lease terminations that result in an upfront release of maintenance reserves. And so, you know, it always depends upon the transactions that you have coming through each quarter. That's why it tends to bounce around. But all of those things have been quite strong this year. But over time, we expect those to normalize and get back down to that around $50 million net technical number per quarter.

Got you. Cool. Thank you. Sure.

We'll take our next question from John Godden with Citigroup.

And Gus, you know, obviously, financial distress is a topic, again, with fuel prices where they are and the prospect of escalation, I guess, in the Middle East post the U.S. midterms. Can you just do a bit of around the world update on what you're seeing in different regions and just give us a general temperature check on financial distress as you see it, if fuel stays here?

Sure. Now, of course, everyone says the solution to high oil is high oil. And ultimately, that will be true. But you are right. Of course, there are airlines in different parts of the world that do face challenges. I would say not so much by geography. A lot of it is to do with the product offering that they have. For the most part, those airlines that are catering solely to an economy class low fare model without the ability to offer a product that has some price inelasticity or demand inelasticity, those guys are struggling a bit. So I'd say, and particularly where they have to fly long haul, because it's not so bad if you're a Ryanair bouncing around Europe where your average stage length is two hours. You're not really killing yourself with fuel if a low fare model, if you're very low cost base. But if you're flying five hours, Fuel is a much more important part of your network. So I would say the guys that we would be more concerned about is the longer haul, four at three and a half to five hour stage lens, low cost model. That's just under a bit of pressure because their customer base can only pay so much. But most of the airlines around the world are able to pass on to varying degrees, a reasonable proportion of the increase in fuel costs. If we look back, though, of our history over the last 20 plus years as a public company, our bad debt costs, our credit costs have averaged less than 1% a year. So AirCap is uniquely positioned to move assets around the world because of the infrastructure we have it, to use different methods to monetize the assets, to resell them, Do we put them into the engine business? Do we put them into our part-out business, etc.? And again, with the scale that we have around the world enables us to do things that simply others can't. And, you know, no one is wishing for the continuation of the war, of course, or high fuel prices and stress with our customers. But in the past, that has sometimes presented opportunities for us, which we have been able to take advantage of.

That's a great overview. And just changing gears, could I revisit aero derivatives and just get your latest thinking there? All the demands on power from AI, you know, all those forecasts just keep going higher. And it seems like we're at a point where the rubber meets the road on that. So I'm curious where you guys stand.

Sure. And I did reference that in the last call. and it's something we have looked at very closely for the whole for now 10 months and there's a number of factors involved as I referenced before the longevity of demand which is vital because it's a very expensive thing to do the hurdle rate that an engine in air cap the alternative use of that engine and air cap has to get to is very high as you can see from our results the consistency of our results and then finding the right partners to do it. We have had significant discussions. Now, look, all that being said, of course, we're selling engines to people who are going into the aero derivative business. And I would say this, of course, if you have power now, as I referenced on the prior call, if there is a significant premium, a very significant premium available to you right now, if you have power now, whether that premium will be there in 6, 8, 10 years' time when it's what you need given the investment you make is less clear.

Okay. Thank you.

We'll go next to Katherine O'Brien with Goldman Sachs.

Hey. Good morning, team. Thanks for the time. Maybe one more on the asset sales. Would it be fair to say that the elevated sales of the last two years were really driven more by portfolio management versus, you know, I've heard this from a few people trying to cash in on gain on sale margin driven by some view of the cycle. And I guess any thoughts on how we should think about the level of asset sales going forward, you know, on a high level over the next couple of years? Is there maybe a good rule of thumb in terms of percentage of the fleet tied to average age or something? Or it's really just entirely situational based on the information you have each year?

Well, Catherine, it's never entirely situational. It's very thoughtful, strategic over the last 15 years. And I think you may have seen what we call our sunshine charts, which show how we've shaped the portfolio over the last 15 years and the assets we've sold and the consistency with the type of assets we've sold. So gain on sale is never the driver. I mean, gain on sale would be, as I say, fool's gold. If I'm selling assets to maximize gain on sale and I sell my best assets to do it, the portfolio that we have on average is weakening all the time. It's getting worse. And then I'm compounding that error by going out and buying shares in it. So that is a very poor use of shareholder money, very poor stewardship of the platform. Our view has always been very consistent. This is where the portfolio is driving towards, and these are the assets we're selling. And it's not being sold for gain on sale because that will take care of itself. If you manage the asset well, you've managed the maintenance condition of the assets throughout its life, you'll get the best price in the market whenever you go to sell it. Now, sales have been elevated over the last couple of years, of course, because there has been a reduction in the China exposure. and they have been on a value basis, absolute value basis, bigger assets because they'd be newer assets, whereas assets we've sold outside of China have tended to be lower value. Pete, anything you want to add?

I guess I would just add in terms of the margins, as I mentioned last quarter, I mean, they do move around every quarter just depending on the assets that happen to be sold in a particular quarter. This quarter, we saw it quite high, 45%. Last quarter was 20%. Previous quarter was 24%. So that is going to bounce around. I think it's hard to discern a trend based on any single quarter. But this quarter, it was really driven mainly by we had very strong gains on sale in engines and midlife and older assets. But across the board, we saw strong gains on sale for everything that we sold.

That's great, really helpful reminder of the long-term focus here on asset sales. Maybe just one more for you guys. When fuel first began its run, you shared you thought airlines would wait before making any major fleet plan changes, which as far as I can tell from my admittedly U.S.-centric point of view has proven right. There does seem to be a shift to management teams thinking about higher for longer prices. Have you observed any pivots on fleet planning, maybe in terms of lower extension rate at air cap or Airlines, you know, I think we've already touched a little bit on the retirement topic, but, you know, conversely, like trying to find a way to take more fuel efficient new aircraft, understandably, the market's tight. It just would be interesting to hear some of the puts and takes, like if you're starting to see movement on longer term decisions. Thanks.

Look, well, certainly as it relates to the bulk of our business. So if we look at the new tech assets and. They're certainly, you know, no one's changing their fleet plans of what they're thinking of doing in 28, 29, etc. Those discussions are still very robust. The freight business is very robust. The engine business is very robust. But look, if we do continue to see elevated fuel prices here, I would expect to see reduced flying of the less fuel efficient assets, particularly if they're going to have to fly on longer routes. So that I think you would see. Now, that doesn't mean an airline can hand back any asset to you. But, you know, from our perspective, that's a very small proportion of our portfolio. They're all leased out pretty much to the end of their lives anyway. So I would be, from the impact on air cap, I don't think it'll have a huge effect really, to be honest, I referenced earlier. But as we go through the next 12 months, if we do stay at these high fuel prices, I think we'll see reduced flying of that asset type. But I want to be very careful to say that isn't really a huge impact for us because they're very low dollar value assets. They're generally out on lease or we'll consume them through our engine business or our parts business if we have to.

That's great. Very clear. Thanks for the time.

We'll take our next question from Terry Ma with Barclays.

Hey, thank you. Good morning. Maybe just to follow up on the leverage question, we all know what the target leverage level is, but if the business continues to outperform your expectations, is there a practical floor you don't want to operate below with respect to the leverage? And if those larger capital deployment opportunities remain limited, how should we think about just the buyback?

Well, you can see, Terry, maybe I'll start and then Gus can chime in. Look, you know, we have been doing a lot of buybacks. Our expectation is that we wouldn't fall lower below our current leverage ratio. But it's all looking at the various opportunities that are out there. And so we've been buying back stock, but we have also been buying assets. And as you saw from Gus's presentation, those are significant numbers that we've added to the order book. Those will come through. They're not immediate, but they do come through over time. And we'll look to continue to do those. But maybe, Gus, I'll turn it over to you for any comments.

I think, look, we've always been very active in the market when there is opportunity. And the good news is that the company has never had a stronger balance sheet in its history. And as I said, we have a vast amount of capital available to us today. And whether we deploy that in the in buybacks, asset purchases, etc. We'll always do what we believe is in the best long-term interest of the shareholders.

Got it. That's helpful. And Pete, maybe just update us on the net spread outlook. I think you have a large slug of debt to end of this month. When you kind of factor in the assets coming back onto lease and just everything else, what's the outlook over the next few quarters?

Sure. So the net spread this quarter for the third quarter was eight point one percent. And it's really moved. It stayed between eight and eight point one percent over the last several quarters. I'd expect it to to stay about that level for the next for the next couple of quarters. Over time, we should see some modest increase in that as we get the Spirit aircraft continue to come back on lease. You had some of the benefits of the COVID era leases rolling off, as we've talked about before. But as you mentioned, we also have higher interest expense, which is built into that number that I gave you. So, you know, you've got those two competing factors. I think the net effect of that will be some gradual upward movement in the net spread. But over the next couple of quarters, I expect it to remain pretty much where it has been.

Got it.

Thank you. Sure.

We'll go next to Jason Holcomb with Morgan Stanley.

Hey, guys. So, Gus, last quarter you described the A321neo as the prime aircraft in the narrowbody market. And you mentioned the MAX 10 certification would be important for improving the competitive position of the MAX 8. So now that the MAX 10 has been certified, how do you think about the competitive dynamics between Airbus and Boeing? and could this materially improve leasing demand and residual values across the broader MAX family or is Airbus' advantage a little bit more structural?

Thanks.

I mean, the big challenge now for the MAX 10 is getting them into service. So certification is great and we're thrilled that the team at Boeing got that over the line along with the FAA as the biggest owner of aircraft in the world. We really want to see a strong Boeing We want to see Boeing competitive with Airbus, and this is a key to it. The next step, though, to actually realize that competitiveness is to start delivering the aircraft and in some scale. So that is the challenge, of course, and obviously we're aware of what Boeing announced yesterday on their call regarding the ramp up. That is the key. Can the MAX 10 get into service in large scale in the next four or five years. That's the key to be competitive with the 321.

Thanks, Gus. And maybe just a quick follow-up for Pete. So I think Pete, coming into 2026, I think the outlook had expected leasing expenses in SG&A to be around like $1.2 billion. I think through three quarters where those expenses are now around like $770 million. Is there anything abnormal we should be thinking about in 4Q? And if not, can you provide some context as to what drove the lower than expected expenses throughout the year?

Sure. So on the leasing expenses side, that's been the main driver of it. That's really because we've seen some maintenance events being pushed out. Thank you for joining us. So I'd say that's been the main driver in pushing those expenses out. And that's one of the reasons why, on the maintenance side, I mentioned that I thought we would get back to the net contribution of $50 million a quarter next year.

Got it. Thank you. Sure.

We'll go next to you, Chris Stafilopoulos with SIG.

Morning, everyone. One question. In a hire for fuel scenario, could you give a little bit more context? You mentioned around the SLB opportunities here and you spoke to earlier around perhaps lower cost carriers. I think with what you said around a three to five hour trip, perhaps being under a little bit more pressure, a little bit more context there. But then also, if we could revisit the idea of this barbell approach you have to the portfolio, and how that looks within a higher fuel scenario as it relates to the older and current technology. Thank you.

Sure, sure. Well, I should have said, of course, there's nothing wrong with low cost. It's low fare is the challenge. If your costs are low enough, you can have low fares. The challenge is many airlines, unfortunately, don't have the low cost, but they have the low fare. and that problem becomes accentuated as you fly longer distances because fuel just makes up a greater component of the cost base and you're not getting the incremental revenue to justify the additional flight time. As it relates to the barbell approach and those of you who have seen it and I'm sure it's available on our website in the presentations over 15 years, how we've looked at the portfolio of aircraft has said because of what we see, so much information we get every day about and many more. older tech assets, so end-of-run assets you had to avoid at all costs. So if you were buying A320s, 737s, A330s in 2016, were you really ever going to get 24 years of life out of them? Unlikely. And that proves to be the case. But they looked attractive way back in 2016 when there wasn't much available. And there never is that much available. It's one thing to think about. If you're in the right asset in aviation, you never really get any sustained period of oversupply. and many more. and we can monetize those assets through our engine business and through our parts business. So as I look at our own portfolio, I don't see that as a threat because of the very long term planning and understanding of demands from the customer base and how we've executed on that over a very long period of time.

Thank you.

We'll go next to Aaron Syconovich with Truist Securities.

Thanks. You know, Gus, I wanted to Talk a little bit about the opportunity from potential sale leasebacks that you referenced with rising or elevated oil prices. Given your long history and your unique global view of airline health, how long would it take to get to that point where you think that opportunity would start to really present itself to you?

I mean, it is something, of course, that we're always looking at how we can work with our customers and if there are things we can do to help them to solidify their balance sheet and their liquidity. Those discussions are ongoing all the time. Of course, I suspect that in the new year, there may be a little bit more intensity around them. But, you know, we will, of course, make sure that we're very focused on all of our customer base, those that need help and how we can do it. I would say as we look through the next few quarters, I know we'll be in discussions as to whether or not they meet the return conditions and thresholds for our shareholders is another matter. But if they do, of course, we'll be very aggressive.

Okay. And then a quick one. Could you just remind me what the interest rate benchmarks that your lease rates are kind of attached to in your contracts for your forward leases?

For the most part, it's the seven-year SOFR. For the most part. Sometimes it could be a treasury rate, but for the most part, it's seven-year SOFR because that matches the average duration of our lease book and the average duration of our debt. And that's the key, of course, as to how AirCap has historically managed its business on the liability side is to run a hedged book. Great.

All right. Thank you.

We'll take our next question from Don Grete with Deutsche Bank.

Yes, thanks very much. Gus, you highlighted the strength of the widebody market and a great anecdote about the 380. It looks like that tightness is going to continue into the next decade. And yet, if you look at lessor's share of the widebody passenger backlog, it's at a record low, sub 3%. 80% of it is one operator for one aircraft type. I'm wondering what's going on there. Your own order was Quite small for the top off for the 787-9. Is it just sale leasebacks or the more appropriate way of adding widebodies? Or should we see someone make a bigger dive into spec orders for widebody passengers?

Well, you know, Doug, look, I'll be honest. I wish I bought a lot more widebodies a couple of years ago. To be fair to Christian Scherer, who ran Airbus four years ago, he said to me, you should buy more. I didn't, so mea culpa. But what I would say on the wide bodies is, of course, we would do more. We did the recent top up, as you noted, on the seven eights. We could have done more. There was more to be done. But there was a point because of escalation and the conditions where it didn't work for us. There were certain things we were able to bring to Boeing to get a portion of the deal to economics that worked for us and our shareholders. But if it doesn't, you know, I can buy back all the white bodies in the world down at the New York Stock Exchange under the ticker Alpha Echo Romeo. And so there's no shortage of our ability to buy white bodies.

Great. And then a quick follow up. You touched on escalators. We've seen lessors in general creeping further towards the horizon on when they're taking skyline deliveries. I guess in a world where escalator caps are not as easily available as they might have been five or six years ago, how far out is too far to place a speculative order for a narrowbody or a widebody airplane?

Well, Doug, as you can see from my answer to the last question, there was a limit where I was willing to go based on what was available on escalation caps. So, you know, I mean, it all depends on what type of escalation protection you're getting. If you don't really have a true cap, then I think going out into the 2030s, 2033, 2034, 2035, it would be a challenge, I think. But the recent orders we've put on, for example, I think we did 130 this year. We did 50-odd last year of aircraft. and I'm pretty sure that 90% of what those aircraft will deliver before I saw a competitor announce the deal last week for a similar number. And I think they'll start delivering when ours finish. And that's a function of the capability of AirCap as I referenced in my prepared comments. We're able to reach things others just simply can't. And through the combination of our presence with the airlines, our speed and vitally then our ability to help OEM production to our engine business.

Great. Thanks very much for the answers.

At this time, there are no further questions. I will now turn the call back to Mr. Aengus Kelly for any additional or closing remarks.

Thank you, operator, and thank you all for joining the call. This was another record quarter for AirCap. We raised guidance, and it reflects really the power of the platform. This business is just not about just buying, leasing, and selling aircraft. It's about actively managing every aspect of the asset throughout its lifecycle. And then when you generate capital, you have to allocate it correctly. There's no point being able to generate it if you can't allocate it. And that's always at the forefront of our mind. And the combination of those factors is what drives the earnings power and the durability of our earnings for a very long period of time. So thank you all very much for joining us, and we'll talk to you in three months' time. Thank you, operator.

Thank you. This does conclude today's call. Thank you for your participation. You may now disconnect.