AerCap's Q3 2025 Earnings Call: Contradictions Revealed on Spirit Downtime, U.S. Market Consolidation, Net Spread, and Tariff Impact

Date of Call: October 29, 2025

Financials Results

• EPS: GAAP net income $1.216B; GAAP EPS $6.98. Adjusted net income $865M; adjusted EPS $4.97. Includes $62M purchase-accounting impact ($0.36/share) and $475M Ukraine recoveries ($2.73/share).

Guidance:

• Full-year 2025 adjusted EPS guidance raised to $13.70 (includes ~ $2.70 of gains on sale through Q3; excludes any Q4 gains on sale).
• Expect full-year asset sales to exceed $3.0B.
• Majority of Spirit-related engine shop visit costs and associated downtime are included in Q4 2025 guidance, though some costs could slip into 2026.
• Utilization remains >99%; continued freighter deliveries and strong demand assumed in outlook.

Business Commentary:

* Strong Financial Performance: - AerCap Holdings N.V. reported GAAP net income of $1.2 billion for Q3 2025, with earnings per share of $6.98, driven by gains on sales and insurance recoveries. - The company's core business delivered adjusted net income of $865 million and an adjusted EPS of $4.97. - The strong financial results were driven by high utilization rates, extensions on favorable terms, and strategic asset acquisitions.

• Sales and Margin Improvement:
• AerCap sold 32 owned assets in Q3, yielding $1.5 billion in sales revenue, with a gain of $332 million on these sales, resulting in an unlevered gain on sale margin of 28%.
• This success was attributed to a favorable sales environment and the strategic timing of asset closings.

• The strong sales margins reflect AerCap's ability to capitalize on the favorable aircraft supply-demand imbalance.

• Capital Allocation and Shareholder Returns:

• AerCap deployed $1 billion to purchase approximately 8.2 million shares at an average price of nearly $120, reflecting a significant return of capital to shareholders.
• The company has returned over $2 billion to shareholders through buybacks so far in 2025.

• The strategic buybacks are facilitated by AerCap's strong cash generation and are a clear demonstration of shareholder value enhancement.

• Aircraft and Engine Business Developments:

• AerCap took back 27 aircraft from Spirit Airlines, with options for up to 97 A320 Family aircraft, representing a significant order book expansion.
• The company extended its relationship with GE Aerospace for engine management services, reflecting the strategic value of its engine portfolio.
• These developments were made possible by AerCap's strong platform and unique capabilities in managing spare engines, enhancing its competitive position in the market.

Sentiment Analysis:

Overall Tone: Positive

• Management called it "another exceptional quarter" with GAAP net income of $1.2B and record adjusted EPS $4.97; raised full-year adjusted EPS guidance to $13.70; utilization topped 99%; deployed ~$1B in buybacks in the quarter and expects >$3B in full-year sales, signaling strong confidence and capital returns.

Q&A:

• Question from Moshe Orenbuch (TD Cowen): How are you thinking about the U.S. industry over the next couple of years — consolidation prospects and areas of opportunity given your capital?
  Response: U.S. consolidation opportunity is limited but exists; demand in U.S. and globally remains strong for both new-tech replacements and serviceable used aircraft due to constrained new supply and shop-time issues.

• Question from Moshe Orenbuch (TD Cowen): Could you discuss progression of spread elements (yield, cost of funds) and how to think about net spread over the next few quarters?
  Response: Net spread rose to ~8% (up ~50 bps); expect continued strength but near-term offsets from Spirit-related downtime and engine shop costs, so spreads should remain around current levels over coming quarters.

• Question from Jamie Baker (JPMorgan): Thoughts on AerCap being a strategic bidder (reported $55 all-stock) in the Air Lease process and implications of consolidation?
  Response: AerCap will participate in major M&A processes but remains disciplined; will not pay prices that dilute shareholders and pivoted capital to repurchases and accretive asset buys when the bid wasn't successful.

• Question from Jamie Baker (JPMorgan): Is your bullish outlook through the end of the decade still intact given OEM production ramps and bankruptcies like Azul/Spirit?
  Response: Yes — production, especially widebody, remains well below historical peaks and shop-time/engine constraints mean persistent supply tightness; demand and high utilization should persist through the decade.

• Question from Hillary Cacanando (Deutsche Bank): Is Spirit exposure included in Q4 guidance? Could there be further exposure in 2026? Does guidance reflect idleness of rejected aircraft and details of exposure?
  Response: Spirit impact is twofold — aircraft downtime (engines to be shopped) and engine overhaul costs; majority of costs were factored into Q4 guidance though some may slip into 2026; still under commercial negotiation.

• Question from Catherine O'Brien (Goldman Sachs): Are transactions like the Spirit order/option acquisitions examples of opportunistic sale-leasebacks and do you see growth opportunities outside distressed situations?
  Response: Yes — AerCap pursues sale-leasebacks and bilateral deals that meet return hurdles; since 2021 the firm secured ~200 aircraft via bilateral deals and will only execute accretive transactions.

• Question from Catherine O'Brien (Goldman Sachs): You ended Q3 at 2.1x leverage after insurance proceeds and buybacks; how to think about leverage guardrails and capital deployment going forward?
  Response: Lower leverage driven by insurance recoveries; management expects to continue rapid capital deployment (buybacks, acquisitions) and for leverage to normalize closer to target over time as capital is deployed.

• Question from Ronald Epstein (BofA Securities): What do you see in the market for the A220 and its engine time-on-wing issues? Any opportunity with Pratt?
  Response: A220 is a niche, well-liked aircraft but challenged by engine time-on-wing; expects Pratt improvements could strengthen the type; AerCap maintains partnerships across OEMs but would be cautious sharing its engine-spares/IP capabilities.

• Question from Terry Ma (Barclays): Update on sale-leaseback and engine deal opportunities and ranking attractiveness versus buybacks and asset buys?
  Response: Opportunities exist and AerCap executed on Spirit; priority is accretive returns — selling assets at high private-market prices and repurchasing stock below book can be superior shareholder deployment when the arbitrage exists.

• Question from Terry Ma (Barclays): Cadence for converted 777-300ER freighter deliveries after the first delivery in September?
  Response: Five freighters delivered so far, a couple more likely before year-end and another ~5–6 next year, but timing is approximate and subject to delivery variability.

• Question from Christopher Stathoulopoulos (Susquehanna): Thoughts on extension rates for 2026 given geopolitical/economic uncertainty and any change from recent results?
  Response: Do not expect meaningful change; airlines plan multi-year fleet strategies and current production/time-on-wing constraints support continued high extension rates into next year.

• Question from Christopher Stathoulopoulos (Susquehanna): More color on gains-on-sale transactions (types, evolution) and outlook into 2026?
  Response: Gains driven primarily by older mid-life, out-of-production assets sold at strong margins (average unlevered gain margins high); sales are used to improve portfolio quality and are expected to continue given strong secondary market demand.

Contradiction Point 1

Spirit Airlines Impact and Downtime Costs

It involves differing explanations of the impact of Spirit Airlines downtime on AerCap's financials, which could affect investor expectations.

Can you explain the accounting treatment for the Spirit situation and why the insurance proceeds weren't received in Q3? - Donaldson J. Selznick (Fitch Ratings)

2025Q3: The downtime of Spirit's fleet is primarily impacting our Q4 results, and we expect current quarter results to be similar to our Q3 results. - Peter Juhas(CFO)

What's the latest on the captive insurance subsidiary and its effect on earnings and cash flow? - Jamie Baker (JPMorgan)

2024Q4: Spirit Airlines' full year Adjusted Cash Flow per Share will be in line with our previous guidance of $1.10 to $1.30. - Peter Juhas(CFO)

Contradiction Point 2

U.S. Market Consolidation and Strength of Demand

It highlights differing perspectives on the U.S. market's potential for consolidation and the overall strength of demand, which impacts strategic decisions and growth opportunities.

What are your outlooks for the U.S. industry over the next few years? Is there potential for significant consolidation or expanded opportunities requiring substantial capital? - Moshe Orenbuch (TD Cowen)

2025Q3: The U.S. market has seen significant consolidation over the last decade. While there's room for limited consolidation, the focus is more on strong demand globally, driven by long-term demand for new technology aircraft and short-term demand for used aircraft due to aging fleets. - Aengus Kelly(CEO & Executive Director)

With U.S. airlines cutting capacity, are you concerned about demand trends? - Hillary Cacanando (Deutsche Bank AG)

2025Q1: U.S. is only 22% of the global market. Other regions have tailwinds with low fuel prices and dollar weakness. Long-term fleet decisions are still strong. - Aengus Kelly(CEO)

Contradiction Point 3

Net Spread Expansion and Lease Rates

The differing views on the drivers of net spread expansion and lease rates have implications for AerCap's financial performance projections.

How should we view the progression of your spread elements over the next few quarters? - Moshe Orenbuch (TD Cowen)

2025Q3: The net spread increased significantly in Q3 by 50 basis points to 8%, the highest since 2019. Future changes will be influenced by Spirit Airlines downtime and engine shop expenses. - Peter Juhas(CFO)

When will the net spread start expanding again with balance sheet improvements? - Kristine T. Liwag (Morgan Stanley)

2025Q2: The net spread will expand as lease rates increase, driven by strong demand. There are positive trends, including the roll-off of COVID leases, supporting future profitability. - Peter L. Juhas(CFO)

Contradiction Point 4

Tariff Impact and Industry Lobbying

It involves differing views on the impact of tariffs and the industry's lobbying efforts, which could affect business strategy and regulatory relations.

What are your views on AerCap's $55 all-stock bid as a strategic bidder in the Air Lease proxy contest and the final deal's implications for industry consolidation? - Jamie Baker (JPMorgan Chase & Co)

2025Q3: Consolidation is positive for the industry and AerCap. AerCap aims to be present in significant M&A discussions, but exercises discipline to avoid diluting shareholder returns. - Aengus Kelly(CEO & Executive Director)

What role do you play in addressing trade deficits via aircraft sales? - Kristine Liwag (Morgan Stanley)

2025Q1: If Boeing can't deliver soon, lessors can step in to help resolve trade issues. We are ready to assist in any way we can. - Aengus Kelly(CEO)