00:00Are you surprised that the markets took your numbers pretty negatively? Stocks are down.
00:04I think our first half result was a strong one. We delivered $357 million of profits.
00:10As you said, we moved forward. All of our business areas improved year on year.
00:15We've still got a strong balance sheet. We grew that probably slightly ahead of expectation,
00:20and we declared a higher dividend. So, somewhat surprised.
00:25Any clarity for the coming quarters? I mean, how strong is the demand for aircraft?
00:32There's still a structural imbalance of supply and demand for aircraft.
00:38This year will be the first year since 2018 that actually we'll get back to delivering that same number of
00:45aircraft.
00:46So, you've had so few aircraft deliver during the intervening years compared to expectation
00:51that the shortfall is into the thousands of aircraft, not the hundreds,
00:56and that's going to sustain for a long period of time.
01:00If we look at what's happening in the supply chain,
01:02that constrains the ability of all the manufacturers to ramp up,
01:07and therefore this is going to remain probably through till the end of the decade.
01:10So, can you quantify that demand? I mean, we have seen an improvement in terms of delivery, right?
01:15But what kind of pace are we looking at, and what kind of demand are we looking at?
01:20If we look forward through to the end of the decade,
01:24and we apply even conservative growth in aviation,
01:29at the same time, what's also happened is that people haven't been able to retire older aircraft
01:35because the newer ones haven't been coming in.
01:37So, in the last four years, the average global age of the fleet has gone up by two years.
01:42And so, we're going to have to start to see a higher retirement wave
01:46as well as meeting that growth and meeting that traditional demand.
01:51And supply just can't keep up.
01:54So, that will mean that maybe by the end of the decade, on the narrowbody side,
01:59it comes back into balance because that's where both Airbus and Boeing
02:02have been focusing their efforts to try and rebuild the supply chain,
02:06get that stability back.
02:08On the widebody aircraft, we are nowhere near getting back to those 2018 levels of deliveries,
02:15and they aren't ramping up as quickly.
02:17And so, actually, that imbalance could run for much longer on the widebody aircraft.
02:21To be sure, though, airlines are not having a great time,
02:24and we're hearing stories about airlines pulling back on their growth plans.
02:28Is that what you're hearing?
02:30It's different in different parts of the world, I think.
02:33Clearly, the biggest direct impact to all airlines has been the change in the jet fuel price.
02:40And jet fuel has gone from approximately $90 a barrel at the beginning of the year
02:45to roughly $150 a barrel today.
02:47And that's one of their largest costs.
02:50And so, that does have a direct effect.
02:52But the key question is, can they pass that through to the consumer?
02:56And that's different in different parts of the world.
02:59Very much in North America, what they're seeing is that they can pass that through
03:03and that they can push through higher prices and demand is not really falling away.
03:09Europe's been different because in Europe the airlines were much better hedged.
03:12And so, it's had less of an effect, and they have been able to cover a lot of that increase.
03:17Parts of Asia have definitely struggled.
03:20China's different again.
03:21And China, because of the breadth of their high-speed rail network,
03:25if they try and push through those large fuel increases to the airline passenger,
03:30people will travel further on high-speed rail.
03:32And so, it's been more challenging for them to pass that through.
03:35You talked about how parts of Asia are struggling.
03:39Are these airlines having difficulties in financing?
03:43And are they approaching lessors, like yourself, for more financing as a result of that?
03:49For all airlines right now, if they're looking forwards, they're going to want to conserve cash.
03:56That's the logical outcome of where we are.
03:59None of us know how long these fuel prices will stay where they are.
04:03And so, if you're in a market where you can't pass all of that through by way of fare increases,
04:09if you're in a country where perhaps your domestic capital markets are not so deep
04:13so you can raise funding from that source, then an obvious way to do that is to look at your
04:18aircraft.
04:19And so, either perhaps your new deliveries, if you are planning on financing half of them this year
04:25and paying cash for the rest, now maybe you think about financing all of them.
04:29If you look at your existing fleet, maybe you've got some unencumbered aircraft,
04:33you sell those and lease those back.
04:35Perhaps if you've got a large order book with Boeing and Airbus,
04:38and you're due to make greater pre-delivery payments this year as those ramp up in the future,
04:43then you're looking to people like us to fund that as well.
04:46So, you're not getting additional cash going out the door.
04:49But I'm just wondering, in terms of airlines tapping lessors like yourself,
04:54I mean, in terms of percentage, what, 30%, 40% perhaps of your customers
04:59are tapping you for financing help.
05:02Is there a way to quantify it?
05:04I mean, if we step back and look at the global aircraft fleet,
05:09about 50% of all aircraft are owned by leasing companies such as us.
05:13And that comes in two ways, because it's either people who are taking aircraft from us,
05:18from our order book, to build their capacity, or it's people using that capital.
05:23And certainly, we're seeing an uptick in people wanting to access our capital.
05:28We saw that in the first half of this year.
05:30That's why we completed $2.3 billion of CapEx, which was ahead of our guidance for this year.
05:38But at the same time, we still have airlines coming to us looking for new technology aircraft.
05:44Because, again, if you think through their trying to position for a world of higher fuel prices,
05:49you want to have the most fuel-efficient aircraft.
05:52And therefore, you want to speed up that transition.
05:54And so, at the same time, we're still having all of those discussions.
05:58And people are looking through this.
06:00So, even this week, we are talking to airlines about placing aircraft on lease that won't deliver until 2029 or
06:072030.
06:08Who's hurting the most right now?
06:10Who's hurting the most?
06:13If you're an airline, perhaps, that was weak anyway going into this,
06:19if you're in a market where it's difficult to pass through those fare increases,
06:24if you're perhaps in a country where domestic capital markets are not so deep,
06:29and in particular, then, if you had quite a number of routes in and out of the Middle East,
06:33then that will all add up and create issues for some people.
06:36That sounds like most of the Asian airlines.
06:40It's not all.
06:41It's not all.
06:41I don't want to comment on any individual airlines,
06:46but there will be challenges for airlines in Southeast Asia.
06:51But there are bright spots as well.
06:53If you were flying from Asia to Europe,
06:56and you were competing with all the airlines where they were stopping off in the Middle East,
07:01a lot of that traffic now is going direct.
07:03And you can actually charge higher fares for that if you're in that position.
07:08How are you looking at your own business?
07:10You have a pretty deep pocket right now.
07:12I mean, some would suggest that M&As could be the way to go.
07:16Are you looking at M&As?
07:17We're actually...
07:18Don't be shy, Stephen.
07:21We're actually unique in terms of the big players in our industry.
07:25We're the only one of the top five in our industry that's never undertaken any M&A.
07:30We've always grown organically,
07:33whilst the rest have all grown through some form of M&A.
07:35And that remains our base case,
07:37that we can see how we can grow the way we want to,
07:41how we can stay as one of those top five globally through organic growth.
07:45But if this volatility creates opportunity, of course we will look at it.
07:50Are you seeing possibilities right now?
07:53I mean, given the uncertainties and given your strong position,
07:59are you in negotiations perhaps?
08:01We haven't reached that point yet.
08:02I think this sort of volatility will have to run for longer
08:06to create those types of opportunities.
08:09But on the lookout for it?
08:10We'll watch it.
08:11We have the lowest marginal cost of funding in our industry.
08:14And so where we can see opportunity to grow, we will take...
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