Prepared remarks
Please stand by. Good day, and welcome to the AerCap Q2 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 would like to turn the conference over to Joseph McGinley, Head of Investor Relations. Please go ahead.
Thank you, operator, and hello, everyone. Welcome to AerCap's Second Quarter 2026 Conference Call. With me today are our Chief Executive Officer, Aengus Kelly, and Chief Financial Officer, Peter L. Juhas. Before we begin today's call, I would like to remind you that some statements that are 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 our 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. Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated July 29, 2026. A copy of the earnings release and conference call presentation are available on our website at aercap.com. This call is open to the public and being webcast simultaneously at aercap.com and will be archived for replay. We will shortly run through our earnings presentation and allow time at the end for Q&A. As a reminder, I will ask that analysts limit themselves to one question and one follow-up. I will now turn the call over to our CEO, Aengus Kelly.
Thank you for joining us for our second quarter 2026 earnings call. This was another strong quarter for AerCap as reflected in our financial results, disciplined capital deployment, and increased full-year guidance. AerCap's business maintained its momentum in the second quarter, as highlighted by our transaction activity. The lease extension rate on passenger aircraft was 85%, well above the long-term average. We also completed $1.4 billion of asset sales during the quarter, generating a gain-on-sale margin of 20%. These operational highlights reflect both the resilience of our business model and the continued benefit of the supply-demand imbalance across our industry. Turning to our financial results, we delivered adjusted earnings per share of $5.14 in the second quarter, representing an adjusted return on equity of 18%. We also generated $1.5 billion of cash flow from operations. This strong cash generation continues to create significant financial flexibility, enabling us to invest in long-term accretive opportunities while also returning substantial capital to our shareholders. During the quarter, we repurchased more than $690 million of our shares and over $1.4 billion in the first half of the year. In addition, we recently ordered 15 new Boeing 787 aircraft. This is a key highlight, which we will discuss in more detail later in the call. Reflecting our strong first half performance and positive outlook for the business, we are raising our full-year earnings guidance to $16.80 per share, not including any additional gains on asset sales. Our outlook is underpinned by a supportive industry backdrop. Let me spend a few minutes discussing the broader market environment. Recent geopolitical challenges have led to higher input costs for airlines and will no doubt put further pressure on airline margins this year. That said, it is expected that the global airline industry will remain healthy in 2026 in aggregate, supported by good travel demand, strong load factors, and disciplined capacity growth. While global traffic growth has moderated year-over-year, trends vary by region. The Middle East, Asia Pacific, and North America have experienced some weakness in daily flight activity, but Europe, Africa, and Latin America have continued to see growth. Overall, the trends we are seeing highlight the resilience of travel demand and the industry's ability to adapt to changing market conditions. For AerCap, this backdrop remains highly supportive. Aircraft and engine availability remain constrained while airline demand continues to exceed supply. We see this reflected in our leasing activity, lease extensions, and asset values. As a result, we remain confident in the long-term outlook for AerCap and the aviation industry more broadly. The supply-demand imbalance is particularly pronounced in the widebody market. Years of production shortages and delivery delays have constrained the availability of new widebody aircraft globally. This is clear from the left-hand side chart on Slide 4. Over the past five years, airlines have extended service lives of older widebody aircraft, resulting in over 200 fewer widebody retirements than in the comparable pre-COVID period. As you can see on the right-hand side of this slide, more recently, widebody production rates have begun to recover, and we expect to see an increase in retirement activity among the oldest and least fuel-efficient aircraft. This trend will likely continue as more new-technology aircraft enter service. With a large number of aging widebodies still in operation, this replacement cycle should support strong demand for widebody leasing for many years to come. Against this backdrop, our order for 15 Boeing 787 aircraft reflects our conviction in the long-term fundamentals of the widebody market. We believe the 787 is one of the most attractive widebody assets, combining favorable economics with a broad global customer base and strong secondary market liquidity. Importantly, delivery positions for new Boeing 787 aircraft remain extremely limited. AerCap's longstanding relationship with Boeing, combined with our scale and ability to execute quickly, gives us a competitive advantage in securing scarce delivery positions. Our Boeing 787s will start delivering in 2030 and run through 2033 at economics that support our long-term return objectives. Today, we not only have the largest Boeing 787 fleets but also the largest Boeing 787 order book of any lessor, and therefore, we are uniquely positioned to meet growing airline demand for next-generation widebody aircraft. This strategic investment allows us to capitalize on a prolonged fleet renewal cycle while providing our customers with access to one of the most efficient and sought-after aircraft types in the market. Turning to Slide 5, this investment is also a good example of the capital allocation framework that guides every decision we make. We continue to deploy capital with discipline and flexibility, directing it toward opportunities that we believe offer the most attractive long-term risk-adjusted returns while maintaining capacity to return capital to shareholders. So far this year, we have added 131 aircraft to our order book, returned more than $1.5 billion to our shareholders through share repurchases and dividends, and still hold approximately $3.5 billion of excess capital available to deploy. In closing, AerCap delivered another strong quarter. Our global platform, consistent execution, disciplined capital allocation, and active portfolio management continue to position us to capitalize on opportunities across the market. With that, I will now hand the call over to Peter to review our financials.
Thanks, Gus. Good morning, everyone. We delivered another strong quarter and I will start reviewing our financial results on Slide 6. Our GAAP net income for the second quarter was $726 million or $4.59 per share. The impact of purchase accounting adjustments was $129 million for the quarter or $0.82 per share. That included lease premium amortization of $26 million, maintenance rights amortization of $36 million related to maintenance revenue, and maintenance rights amortization of $67 million related to leasing expenses. During the second quarter, we had $28 million of recoveries related to the Ukraine conflict, or $0.18 per share. The net tax effect of all these items was $15 million or $0.10 per share. As a result, our adjusted net income for the second quarter was $811 million or $5.14 per share. That represents an adjusted ROE of 18% for the second quarter. Turning to Slide 7, I will briefly go through the main drivers that affected our results. Basic lease rents were $1.677 billion. Maintenance revenues remained elevated this quarter at $177 million. Our net maintenance contribution, which is maintenance revenue less leasing expenses after taking into account purchase accounting adjustments, was $131 million this quarter. That is higher than usual due to the timing of maintenance revenue, transition expenses, and claims. As I mentioned last quarter, net maintenance contribution has been higher than normal for the first half of this year but we expect it to return to more normal levels in the second half of the year. Net gain-on-sale of assets was $223 million for the second quarter. The sales environment continued to be strong, and we sold 38 of our owned assets for total sales revenue of $1.4 billion. That resulted in an unlevered gain-on-sale margin of 20% for the quarter, which is equivalent to a multiple of 1.7 times book value on an equity basis. As of June 30, we had just over $400 million worth of assets held-for-sale. Interest expense was $468 million for the second quarter and income tax expense was $123 million reflecting an effective tax rate of 15.5%. Turning to Slide 8, our liquidity position continues to be very strong. As of June 30, our total sources of liquidity were approximately $22 billion. That includes just under $1.7 billion of cash, $10 billion of revolvers, and $3 billion of other committed facilities, as well as estimated sales and operating cash flow. Our sources to uses coverage ratio was 1.9x which reflects excess cash coverage of around $10 billion. Our leverage ratio at the end of June was 2.05 to 1, which is about the same as last quarter. Our operating cash flow was $1.5 billion for the quarter. And our secured debt to total assets ratio was 9%, which is in line with the record low level reported last quarter. Our average cost of debt was 4.2%. During the second quarter, we bought back 4.9 million shares for a total of $691 million. Together with our repurchases in the first quarter, we repurchased over 6% of the shares outstanding at the beginning of this year. Since 2023, we have bought back 93 million shares or almost 40% of our outstanding shares for a total of $8 billion. Turning to Slide 9, on our last earnings call in February, we projected adjusted earnings per share of $14.50 which included $1.50 of gains on sale from the first quarter. As Gus mentioned, today we are raising our full-year 2026 adjusted EPS guidance to approximately $16.80. We are increasing our estimated EPS excluding gains on sale to approximately $14 and we are also including the $2.80 of gains on sale from the first half of the year. However, we have not included any gains on sale for the second half of the year. In the first half, the drivers of the outperformance relative to guidance were gains on asset sales of $514 million, higher net maintenance contribution, and other income. We have completed $2.8 billion of asset sales in the first six months of this year, and as a result, we currently expect asset sales for the full-year 2026 to be in the range of $4 billion to $5 billion. In closing, AerCap has continued its strong performance this quarter. We generated adjusted EPS of $5.14 and adjusted ROE of 18%. So far this year, we have returned over $1 billion to shareholders and we have made significant additions to our forward orders with Airbus and Boeing. We continue to grow our fleet with new-technology, fuel-efficient aircraft. And today, we have once again raised our EPS guidance. All of this indicates our confidence in the value of AerCap today and into the future. With that, operator, we can open up the call for Q&A.
Questions and answers
Thank you. If you would like to ask a question, please signal by pressing star 1. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Again, press star 1 to ask a question, and we will pause for just a moment to assemble the queue. We will take our first question from Jamie Baker with JPMorgan.
Good afternoon, everybody. So Gus, question on the 85% extension rate. So what takes place with the other 15%? Is that mostly made up of, I do not know, end of lease sales? Is it part-outs? Is it customer purchases? I am just wondering, we all know how strong the environment is, but when a lease does not get extended in this market, just kind of wondering what the outcome is. How common is it that you take the asset back, paint it, and release it? That sort of thing. Just concentrating on the 15%.
You are right, Jamie.
It is generally quite rare that the aircraft would come back and be released. The odd time it will. So for the most part, they end up getting parted out.
Okay.
Just to be clear on that percentage, Jamie, the way we calculate that is: that is 85% of everything that is either going out on lease again to a new customer or being extended — that is the denominator. So 85% extended, 15% released, and we have excluded aircraft that are being sold.
Okay. Alright. I appreciate the clarification. I did not realize that. And then, on the follow-up, just the leverage of 2x or 2.05 — clearly lots of firepower at BBB+ to do whatever you want here. Mark and I were wondering, have you thought about lowering the target a touch, shooting for upgrades into the low-A range? Or in this environment, does that even make sense in terms of the marginal savings? Maybe you are just better off buying more stock or maybe another platform. Thoughts on that?
Well, look, certainly, Jamie, with the history of the business over the last 20 years generating the returns we have, the best part of a thousand over treasury every year after tax GAAP ROE with the tremendous operating cash flows, we certainly feel that a move into the A category is deserved and warranted.
Okay. That is perfect. And just back to my first question quickly: anything in those numbers, the 85% and the 15%, as it relates to engine cores going into data centers?
Of course, what we will do is sell assets to those who want to put them into data centers. But as it relates to data centers, Jamie, what I would say is we have done extensive work evaluating the aeroderivative opportunity. We began serious discussions in this area at the start of the year with commercial aerospace OEMs, multiple supply chain participants, and some of the largest owners and operators of OEM-produced aeroderivative turbines. The work we have done includes assessing channel partners, understanding engine-to-power generation conversion processes, quantifying the associated upfront costs, evaluating lifecycle maintenance requirements, reliability, and analyzing the addressable market opportunity for this form of power. We have held numerous diligence sessions and site visits and were able to observe the operation and maintenance of these aeroderivative turbines firsthand. That gave us tremendous insight into how this market has evolved and strengthened in recent years. It is clear that there is strong demand for gas-powered turbines today. Every aspect of this opportunity — from conversion and installation to operation and long-term maintenance — requires specialized expertise and substantial operational experience. From AerCap's perspective, pursuing this opportunity would require strong strategic partners and access to the full suite of capabilities needed to convert, install, operate, and maintain these assets on a long-term basis. The risks we are assessing include operational performance, future costs, and alternative power supply solutions. While the technology to convert aerospace engines into gas-powered turbines is already established, there is a perception in the market that converted units may, in the long term, be less efficient than OEM-produced aeroderivatives. Whether this proves to be the case over the long term remains to be seen. It was also evident in our research that both data center operators and hyperscalers would strongly prefer to be connected to the grid over time. If and when that becomes possible remains a key uncertainty. Should grid capacity expand materially, or alternative technologies improve, demand for aeroderivatives could be adversely affected. Taking all this into account, any opportunity in this area must be evaluated against the industry-leading returns that AerCap generates in our core business. While we continue to see encouraging signs in the aeroderivative market, we will remain prudent and will only pursue opportunities where we believe we have the right partners, sufficient operational capabilities, and a clear path to generating shareholder value over the long term. We will continue to update you as our assessment evolves.
I should have made that my first question. Thank you so much, Gus. That is very helpful. Appreciate it.
No problem, Jamie.
We will take our next question from Catherine O'Brien with Goldman Sachs.
Hey, good morning. Thanks for the time. Maybe just a bit of a follow-up on the leverage question. Jamie was going down that path. Leverage remains well below target and has been for several years. And as I know, the team will not deploy capital to growth just for growth's sake. What does it take to see leverage get back closer to target? Do you need OEM deliveries to start to pick up? Because you guys have been quite active on finding incremental opportunities to pull capital, like in the Frontier and Airbus deal last quarter. But leverage continues to decline. Should we expect to see a potential step up in capital deployment to shareholders? I guess I am mainly trying to get a sense of how much of a priority making the balance sheet more efficient is because it feels like something in the mid-2s would still give you dry powder for larger opportunistic deals when they come up, but maybe you disagree there. Bit of a long-winded question. We are just trying to figure out the urgency, or lack thereof, to take leverage back up and what the potential path to get there could be.
Thanks, Catherine. Look, the main reason why leverage has remained so low has really been just the performance of the business and how much cash and capital we have been generating. It has been very strong. Despite the fact that we bought back 6% of the shares in the first half of this year and all of the commitments we have made in terms of new orders and that type of thing, nonetheless, the leverage ratio has remained the same. So I think that is really what has been the driver of it. We are committing capital. We have amounts remaining in our existing share repurchase program. We see that as attractive, and I think you can expect that to continue. But we are also looking for other opportunities, and there may be larger opportunities. Some of these things that we have done for delivery slots are relatively close in, but it did not result in a lot of capital deployment today; that will be in future years. So that is one of the things that we have been doing. I think over time, obviously, we would expect it to get back to those mid-2s levels, but it will take some time to get there, I think.
Okay. High-class problem. Maybe just one more. The aircraft returned from Spirit pre-liquidation — I think they were originally expected to return to service towards year-end. Is that still on track? And when will the incremental 10 aircraft return to service? How should we think about these aircraft plus the returning freighter conversions impacting that spread over the next couple of quarters? Thanks for all the time, guys.
Yeah. So that is still our expectation that we will see some returning in the fourth quarter. And on the other 10 aircraft, those should go out later this year as well. So that should be a positive for lease yields and positive for net spread. Looking at net spread and lease yields year-over-year, lease yield is up about 30 basis points and net spread is up 50 basis points. Net spread has been flat for the last few quarters as you have seen, despite all those Spirit aircraft and the downtime associated with those. So we should see it come up somewhat over the next couple of quarters, and that is going to depend, obviously, on those redeliveries of those aircraft. But overall, the trend should be upward for lease yield and slightly upward for net spread as well.
Thank you so much, Peter.
We will take our next question from Ronald Epstein with Bank of America.
Hey, good morning guys. Maybe just following up on the question that was just asked. How far through are we now? I am assuming pretty far through the less favorable leases that were signed kind of COVID and a little bit post-COVID. There is a lot of that kind of worked through already.
Yeah. So more than half, Ronald. We are more than halfway through that. It is a long roll-off period for those because some of those were quite long leases. Essentially, we replaced the existing lease terms when we restructured those for the most part, and so that is a pretty long roll-off. I think I mentioned last year it was about six more years that would take to roll off, so maybe over the next five years you will see that. So it is kind of a long-term positive trend that you see and that should be contributing to growth in portfolio yield and the improvement in that spread.
Yeah. I was going to say the portfolio yields should just get a natural lift over the next several years.
Exactly.
And then a quick question for you guys. Back to the last question that Jamie asked on the aeroderivative stuff. What would be the right partner? What kind of expertise are you looking for to feel comfortable that this is something you might want to invest in?
You have to remember, Ronald, it is a very significant investment per engine, so you need long-term demand and the right partner. Our focus is on ensuring we approach this with the right strategic partner, one that can bring the operational expertise and the capabilities needed to drive long-term value from the opportunity. We have had constructive discussions with a number of potential partners but have not yet identified one with a long-term conviction regarding the longevity and durability of the opportunity.
Got it. Then maybe just one last one, if I can. For the engine leasing business itself, supporting those engines, are you guys having any problems getting parts in the supply chain that you need to keep those engines flying?
Have we had any problems with the supply chain getting the components you need to support the engines, particularly the CFM56s? Well, Ronald, one of our businesses supports CFM product globally. At any given time, we are probably moving 50 engines around the world on any given day for GE and CFM, and we have been able to do that. That takes a lot of planning. We have a number of facilities around the world where we know which parts of an engine will be scarce years in advance from our knowledge, and we tend to have pre-bought a lot of the expendable parts that airlines tend to — I will not say use the word pilfer, but when you are in that business moving quickly from A to B to C to D to E to F, you need to really understand what happens to certain consumables on the engines, on the top case, etc. To plan for that years in advance, we have various facilities around the world with stockpiles of those critical parts and we have our own infrastructure that can move these assets around faster and at a greater scale than anyone else in the world.
Got it. Cool. Alright. Thank you, guys.
Yeah. Thanks.
We will take our next from John Godyn with Citigroup.
Hey, guys. Gus, you spent a bit of time talking about the supply-demand in widebodies, which is a wide gap there. I was hoping that you could talk a bit more about what is going on in narrowbodies where delivery rates have tracked back up and, in particular, kind of retirement rates and anything of note on modern versus older engine types.
Look, we still see very strong demand. The prime aircraft of all is the A321neo. If you have an A321neo, you are going to place that — no problem. They are scarce and they are the clear market leader. That is why it is so vital for Boeing to get the MAX 10 certified; that will help. Once Boeing does that, it will actually help the MAX 8. The MAX 8 is a very good airplane. Airlines that operate the MAX 8 and the A320neo would argue that the MAX 8 may even be a slightly superior aircraft, but commonality and operating leverage of having a one-family type aircraft is vital. That is what is held back in placement activity between the MAX 8 and the A320neo family, but I think that will reverse when the MAX 10 gets certified and starts delivering. So no, we certainly see very strong demand out there still for the narrowbody new aircraft. On older tech aircraft, you can see that a lot of our sales are focused on those. There is tremendous demand and a lot of that is supported by demand for engine overhauls. The cost of an engine overhaul shop visit is relatively high, so people will be inclined to buy engines off us to avoid shop visits, and then we might give the airframe to our own parts business in Memphis, AerCap Materials, where we will tear down the airframe ourselves after having sold the engines.
If I could just ask about your take on a NextGen narrowbody. It was in the headlines quite a bit last week on the back of Farnborough. I am curious what you think the customer reception would be for a new narrowbody.
I do not think anyone is bringing one out today. If it were to come today, customer reception would be cool. Over time, as existing technology improves, matures, and starts to deliver the on-wing time that was originally envisaged — and that goes for Airbus, Boeing, Pratt, CFM, etc. — I believe that will happen over the next four or five years. At that point, launching a new narrowbody may be less sensible than continuing technology improvements. I cannot see any significant numbers being delivered before the back end of the next decade. Launch is one thing, but delivery of significant numbers of aircraft is what is relevant to us, and I just do not see that happening before the end of the next decade. We are a long way off.
Thank you for the thoughts.
We will take our next question from Shannon Dougherty with Deutsche Bank.
Thanks for taking my question and congrats on the great results. Gus, this is your first direct widebody order in many years and you have previously expressed some hesitancy in placing direct OEM orders. Why now? Do you think that widebody supply will get worse before moving into the next decade? And if I may, if you were any other customer of Boeing's, when would your 15 widebody start delivering?
I can only talk about when AerCap starts delivering. We know the slots are very rare. It was a combination, as I said in my prepared comments, of the longstanding relationship with Boeing, being the biggest owner of Boeing 787s in the world, and being able to place close-in slots quickly. Certainly, if you are Boeing, you do not want to be dealing with someone who does not have huge knowledge and capability in moving widebodies. Narrowbodies are easier to move, but widebodies are far more challenging, so you want confidence that the entity you are dealing with can definitely move them efficiently. I think our track record there was very important as part of the deal — our ability to move quickly. I cannot speak for when Boeing would offer widebody slots to anyone else, but I would imagine they would be materially later. My hesitancy in dealing with OEMs directly — I do not have any hesitancy. I deal with them; I just do not like rolling up at Farnborough and waiting in line at the Boeing tent to take an order. You want to make sure you do it on your terms and the terms are right. When that happens, of course, we will do as many as we think are economically viable for our shareholders.
Great. Thanks. Separately, how big are your LEAP and CFM56 portfolios today at SES? How many engines are off lease? Any color on lease rates for the two types?
Thanks for the question. Could you just repeat that, Terry? Could you just repeat that question?
How big are your LEAP and CFM56 portfolios today at SES? How many engines are off lease? If you have any color on lease rates, that would be great.
The numbers are de minimis. There is a shortage of CFM56 and LEAP engines globally. Anything that is on the ground either has a home for the next couple of weeks or it is in transition. I would not think there would be more than a de minimis amount.
Okay.
We will take our next question from Moshe Orenbuch with TD Cowen.
Great. Thanks. Peter, when you talked about the full-year gain-on-sale, you mentioned $4 billion to $5 billion — I think you did nearly $3 billion in the first half. Can you talk a little bit about what is left to do in the second half and what the demand from the buyer community looks like?
Sure. Demand continues to be very strong. We have about $400 million of held-for-sale at the moment, but we have a number of other sales that are in the pipeline. While the first half of the year was high, I do not expect us to replicate that first half. I still think being in the $4 billion to $5 billion range would be a record number for us for the full year. We feel pretty confident we will be in that range. That is indicative of the demand we see globally, holding up very well across the board and at high margins. The first half of the year was extremely high; the second half will still be high, but not as high.
Got it. One of the aspects of that high level of sales is it reduces your existing fleet. This quarter you had growth in the net fleet for the first time in a few quarters. Can you talk about the outlook for the second half given what you have in orders? And discuss how the Spirit aircraft fit into that. They are technically in the fleet, but will start to generate revenue. Can you talk about the outlook for growth in the fleet in the second half and into 2027?
Sure. The Spirit aircraft are in the fleet and they are still flight equipment. I would expect the fleet to grow slightly during the latter half of the year. These high sales volumes are impacting that as well. So I think we will see it go up a little bit, but not a huge increase this year.
Got it. Thanks very much.
Sure.
We will take our next question from Kristine Liwag with Morgan Stanley.
Hi, good morning. This is Gabby on for Kristine. Thanks for taking the question. Going back to Shannon's question: in March, you placed your largest ever direct Airbus order for 100 A320neo family aircraft, and then in July you added 15 Boeing 787s. That's a meaningful acceleration in direct OEM commitments after several years of selective ordering. Is there anything that has changed in your assessment of OEM pricing and delivery economics? Are lessors once again able to negotiate attractive terms on new aircraft, or do you still view the market as Boeing and Airbus retaining most of the bargaining power?
If we look at the recent Airbus orders, we acquired almost 200 aircraft with Airbus in the last two years that were order books we took over from airlines. That made it far more attractive. Ultimately, the contracting party is Airbus, but the entity that had the order book were airlines that we helped, whether Spirit or Frontier. In return for that assistance, we were able to step into delivery slots that otherwise would not be available. Those delivery slots begin as early as late 2027 through the early 2030s, as opposed to if we went to Airbus and Boeing directly on narrowbodies and ordered large numbers. Your order stream would probably start materially later, which has a huge impact on economics because of escalation. If escalation is, say, 4% per year and you can take delivery four years earlier than a competitor, your purchase price is probably 16% to 17% less at the end of the day. That is an enormous advantage. The ability to execute transactions like that comes back to AerCap's unique capabilities and scale to interact on these opportunities, but also the unique operational capabilities to take engines out, move them into our leasing pools, take AOG aircraft out of customers like Frontier, and create revenue immediately. In the case of Spirit, our confidence in re-leasing the aircraft and working with the airline, to move very quickly, gave us the advantages that enabled us to get those order books. Those slots just would not be available if you went directly to Airbus or Boeing in the normal course.
Great. Thanks so much.
We will take our next question from Cordelia Dang with Barclays.
Hi, this is Cordelia on for Terry Ma with Barclays. Thanks for taking my question. Talking about gain-on-sale margins, they continue to remain attractive at 20%. What is the durability of these elevated high-teens to low-20s gain-on-sale margins?
When it comes to selling aircraft, gain-on-sale is never the primary driver. The decision to sell an asset is based on what we think the value of the asset is on our books and what we think we can get for it. Whether that generates a 5% gain, 10% gain, or 50% gain, what matters to me is after the sale of that asset, is the company a better company? Did I sell an asset that was better than our average asset? Our average asset probably has around 200 seats, is about seven years old, and is on lease for roughly seven years. After I sell this asset, is that average improved or worse? That is the key question because that is what protects long-term shareholder value. Once we decide to sell, we use our global network to maximize the gain-on-sale, and that is where you have seen strong gain-on-sale performance for 20 years. But Pete can comment on how they fluctuate quarter to quarter.
Cordelia, if you look quarterly you see a fair amount of variation. For example, last year first quarter was 35%, second quarter 18%, third quarter 28%, fourth quarter 24%. This year first quarter was 24% and now it is 20%. So they move around a lot and I cannot discern a simple trend. It depends on what closes in a quarter and the volumes you have. There are a number of factors contributing to these high margins which we would expect to continue. One is the strong environment we have discussed. Another is higher maintenance costs, which translate into higher values for engines with life left. Higher inflation over the last several years, which does not show signs of decreasing, tends to push residual values and sale prices up. So all of those things together are contributing and we would expect this to continue for a while.
Super helpful. Thank you. And then just a follow-up on the aeroderivatives: can you help dimensionalize the potential return profile you would need to see for the aeroderivative opportunity relative to your existing engine business?
We know what our existing business delivers and it delivers very strong returns. The aeroderivative opportunity requires a significant upfront investment and a very long-term durable demand with the right partners to ensure the product delivers the efficiency the customer expects and, above all else, reliability. In the data center business, reliability is paramount: if there is any concern about reliability, no one will take your product. It has to be effectively 100% reliable because when these units fire up, if they do not start reliably, the data is at risk. Any opportunity will be evaluated against the returns we generate in our core business and we will proceed only where the economics and partners align to create long-term shareholder value.
We will take our next question from Erin Cyganovich with Truist Securities.
Thanks. Following up on prior questions around increasing leverage: Peter mentioned there are sometimes opportunities to put big, chunky pieces to work. What are you seeing on that front? Are you seeing portfolios? Consolidation among the larger players seems largely played out. Do you see other consolidation opportunities out there as well?
Leverage is a function of the strong results of the business and the cash we generate. This quarter we had $1.5 billion of operating cash flow, and over the last 12 months it's close to $6 billion of operating cash flow, which is a tremendous amount. As it pertains to opportunities, particularly M&A, we will always look at opportunities in the sector, but any transaction has to be accretive to our shareholders. Over the last four or five years and in the last six months, we've demonstrated that the cheapest aircraft can often be acquired in the public markets under our ticker AER, and that is where we buy significant amounts of aircraft. As Pete mentioned, returning $1.4 billion to shareholders in buybacks is equivalent to buying about $5.5 billion of aircraft in sale and leaseback transactions at economics we could not match otherwise. We will continue to evaluate M&A opportunities, but we will do so with discipline and an eye toward shareholder value. We also have a large order book that will deliver, so some capital will be needed over time for that, too. We want to make sure AerCap is always able and ready to go whenever a significant opportunity presents itself.
Thanks, Gus. My follow-up: in conversations with airlines, given input cost pressures like oil rising, has that changed conversations in terms of opportunities for more sale-leasebacks, etc.?
Not yet, but if these oil prices persist, some airlines will feel that and we would see impaired profitability. At the moment, however, globally we do not see any material impact and the industry remains generally healthy. Over the last 20 years every quarter we have reported credit costs and they've never been a material driver of AerCap's performance; that stems from our ability to move assets rapidly around the world from underperforming to performing regions and airlines. As we look toward the rest of the year, the airline industry on a global basis still looks healthy.
There are no further questions at this time. I will turn the conference back to Aengus Kelly for any additional or closing remarks.
Thank you, operator, and thank you all for joining us. AerCap still has significant financial flexibility, a strong pipeline of opportunities, and a business that continues to perform exceptionally well. I want to thank you for your continued interest and support, and we look forward to speaking with you again in the next quarter. Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.