Aaron Neil, Rory Gwozdz, Deeksha Chaturvedi, Sara Knippa, Pranav Garg | NYSE: AER

Agenda• Company Overview

• Business Model• Business Strategy

• Industry Overview• Leasing Sector• Global Air Traffic

• Investment Thesis & Catalysts• Variant Perception• Risks• Valuation• Q&A• Appendix

Company OverviewAerCap’s Model

Debta) Extend lease to

same lessor ~36%b) Lease the plane to

new lessors ~24%c) Sell the plane or sell

the plane’s parts ~40%

1. 2.Capex Planes

3.

Lease

Lease Revenue

b.

4.a.

Lease Revenue

Lease RevenueNet Gain on

Sale

c.

Company OverviewAerCap’s Strategy

Effective Management

Net Gain on Sale of Assets up ~125% 2017 Q4 TTM

Leasing Trading

Average Gain on Sale historically ~ 5-10%, management guidance higher in that range

Rates on contracts not finalized until aircraft delivery

~ 86% of lease rents through 2020 are already contracted out

Avg Contract: ~ 12 yrsAvg Remaining Contract: 6.6 yrs

Interest Rate Hedging

• Floating debt matched with floating lease rates

• Fixed debt matched with fixed lease rates

Most other lessors tend to have under 50% fixed rate debt

Avg fleet utilization rate

99.4%ROE: ~14%ROIC: ~3.25%Operating Margin: ~48%

• Leading the lessor sector

Company OverviewCurrent Fleet Revenue Breakdown & Services Offered

• Aircraft Leasing

• Used Aircraft Sales

• Used Parts Sales

• Fleet Management Fees

Strong Competitive AdvantageOver other lessors

• Largest Airbus customer

• 2nd largest 787 customer

• First Embraer E2 customer

Over airlines

Company OverviewDiversified Revenue

By Geography

By Customer~ 80 countries served by AerCap

~ 200 airlines served by AerCap

Increasing Fleet Size = Greater Book Value Per Share

~ 2/3 new technology

~ 7.4 yrs~ 6.9 yrs

~ 6.5 yrs ~ 6.2 yrs~ 6.1 yrs

Planes Currently on Order

Industry OverviewLeasing Sector

50% of world’s fleet expected to be leased in next decade

Leased aircraft grows as a

portion of the world’s fleet at

~ 3.5% CAGR

Lessor Value Proposition to Airlines• Free up cash with less

capex• Free up residual value risk• More economical for

lessors to buy planes in bulk

Competition

GECAS (GE) Only Main Competitor• GE generally undergoing lots of turbulence• Under-indexed in Asia – the source of air traffic growth

• ~ 26% of fleet in Asia• ~ 17% of fleet in Europe• ~ 38% of fleet in North America

Other Lessors• Significantly less purchasing power• Many derive their revenue from small number of

customers• Many not exposed to Asian growth• Exposed to interest rate risk• Many are just a group of investors looking for reliable

income – not necessarily to grow

Industry Overview

• Global GDP growth• Emerging countries (Asia)• Growth in middle class

• Particularly in emerging countries

Global Air TrafficDrivers

Middle class to grow from 2.9B to 4.9B in 20 years

Historical Growth & Future

New aircraft needed to meet new demand and to replace old aircraft

• 7.7% growth in 2017 to date

• Historical average of 5.5% annual growth

Air traffic doubles every 15 years

Industry OverviewAging World Air Fleet + New Aviation Technology = An Industry in Transition

Airbus Boeing

NarrowBody

WideBody

A320neo

A330neo

737 MAX

787 Dreamliner

• 75% quieter• 15% more fuel efficient• $1.7M annual savings per aircraft a year• Hit market late 2014, engine problems

causing production issues

• 11% more fuel efficient• 2017 first delivery

• 40% quieter• 14% more fuel efficient• 10 more seats per model• 20% CO2 reductions• 2017 first delivery

• 60% quieter• 20-30% more fuel efficient• More humid cabin• 2017 first deliveries for 787-9 and 787-10

This means more savings for airlines & more convenient flight times

Variant Perception

Favorable market conditions for lessors brought by supply and demand logistics

Short Run Catalysts

Boeing current backlog:

5,774

Airbus current backlog:

6,771

What does this mean for AerCap?• When airlines have to wait 3-5 yrs for new orders, they buy old planes

• Most economic: maintenance not too high yet, they can run them into the ground

• Net Gains will carry AerCap in 2018• Up ~125% TTM 2017 Q3• Increase in quantity sold and margin made

Variant Perception Interest Rates

The Street BIG

• Think that rising interest rates will have a material impact on earnings

• Interest rates will not have a material impact on earnings

• Mismatched debt and leases (fixed vs. floating rates) compensated for with interest rate caps and swaps

AerCap Hedges

Natural Hedging Active Hedging

• ~67-71% of AerCap’s debt is fixed rate• Fixed rate debt matched with fixed rate leases• Floating rate debt matched with floating rate

leases • Increased interest rates passed onto lessor A 100 bps rise in rates would increase interest

expense by ~ $25M (2.3% of 2016 interest expense)

Fed has 2 hikes in 2018 & 1 in 2019 but inflation remains low

Other lessors• BOCA has ~43% fixed rate debt & 57% floating• ACY all floating rate debt

Variant Perception Share Repurchases & BVPS Growth

The Street BIG

• Share repurchases will stop once the stock hits $56, which will decelerate future BVPS growth

• AER has cash to deploy and share repurchases will remain more accretive to EPS than using the cash for capex

Variant Perception General Misconceptions

● This Industry is Highly Cyclical● Decline in Older Aircraft Residual Value

○ As newer planes are on backorder, airlines that need more planes to support the growing demand are going to turn to buying older aircraft, pushing the residual value above book value

● Events Can Lower Travel Demand○ Two of the he most recent events that would

have this effect were 9/11 and 2008. Air traffic stayed flat for a brief period before continuing to increase. It did not lower travel demand

Variant Perception General Misconceptions

● Credit Market DisruptionsAER is the only independent lessor with three investment grade ratings (s&P BBB-, fitch BBB-, moody’s baa3) AER has relationships with over 100 banks and over 450 fixed income investors across North America, the Asia Pacific region, and Europe● Vast Potential for Upside in the Asian Market

Variant PerceptionLong Run Catalysts

Strategic buys: 737MAX, A320neo, 787 Dreamliner, Embraer E2

Increasing Fleet Size by Unit and Value Increasing BVPS

Finish $220M of repurchases through March

2018

Increasing ROE2.7 D/E currently

Management guidance for 3-3.5

D/E range

More leverage for new deliveries

Responsible leverage = higher ROE

Selling older planes + buying newer planes = younger fleet

More # planes + more valuable planes = greater fleet value.

What does this mean for AerCap?

Younger fleet

Lower depreciation

rate (~6→5%)

Interest rate on debt constant at ~4%

Wider lease

spread

Larger fleetStrengthened

demandBoosted

EPS

RisksRisk 1: Supply and Demand Dynamic

• Low demand will cause AER to have difficulty maintaining the cash flows needed to pay off its debt. • Changes in interest rates may put additional pressure on AER as they directly affect net income.

○ Rises in interest rates would hurt fixed rate leases○ Decreases in interest rates would affect the floating rate leases.

• Lease terms are set after contracts, when the airplane arrives. Changes in demand during this period could adversely impact AER’s ability to garner favorable lease terms. This may manifest in a recent purchase of 50 A320neo aircraft, for which the deal was executed at the end of 2017

• Can’t ignore record amount of orders for new aircraft ( currently ~16,000)○ Constricted supply leaves secondary aircraft prices high, but this could change.

• Management does not seeing the demand slowing for at least the next year• Purchase terms for aircraft aren’t finalized until AER gets delivery of the aircraft, so AER can match lease

terms with the purchase price of the plane.

Mitigating Factors

RisksRisk 2: Production Delays

Risk 3: Chinese Economic Downturn

• China is a large source of growth for global air traffic, lessors backed by government = cheap debt• Zhou Xiaochuan (governor of People’s Bank of China) has said rising debt is China’s biggest issue• In general, increasing global GDP drives air traffic growth• Chinese Competition amongst lessors to secure the Chinese market

○ Emergence of new Chinese lessors

• As AER upgrades and complements its fleet with new planes, it has set contracts for these planes that may be partially influenced by production delays.

• Management experienced delays in late 2017, but did not express too much concern over delays due to significant contract backlog and high demand

• In the future, if demand is not sustained, delays could pose a bigger issue

RisksRisk 4: Commodity Prices

• Airlines are affected by oil prices

• Manufactures are affected by steel prices

• High fuel prices affect lessees, and especially those airlines who do not hedge.

• This could affect AER’s customers’ abilities to pay for new agreements or meet prior payments.

• However, the stock’s performance was not significantly affected in the past by such movements.

• May extend time frame on AerCap’s fleet growth○ Pratt & Whitney are having production

issues with A320neo engine○ New Boeing models may have slower

production times than expected

ValuationP/B vs. ROE Analysis

ROE: provides needed insight on return to equity investors with the leveraged capital structure

The Industry Standard

• Young fleet – 3.3 years• Contracted rents• Experienced platformBook Value: Book value less goodwill & related, but includes

certain “intangible” contracts and marked up value of acquired aircraft.

Avolon @ 1.5x P/BPrecedent Transactions

CIT Aerospace @ 1.07x P/B• Old fleet – 27.3 years• Small order book• Unneeded platform

Valuation

Football Field Analysis

P/E P/OCF

ValuationOutcome

Bear

Target:

$ 47.92Implied Upside:

- 12.94%

BaseTarget:

$ 71.90Implied Upside:

30.64%

BullTarget:

$ 91.33Implied Upside:

65.93%

Current:$55.04

P/B: 70%P/E: 20%

P/OCF: 10%

Assumptions

We gave bears the benefit of the doubt and have extremely conservative assumptions

Bear Base Bull

Share repurchases:

Continue to repurchase $220M through March 2018 (started in Q3 2017)

Continue to repurchase $220M through March 2018 (started in Q3 2017)

$700M (7% of float) annually in 2018 and 2019 reducing share count by

Supply & Demand:

Oversupply causes lease rates to fall, negatively impacting EPS

Lease revenue grows steadily as per Street’s view

Lease rates and net gain rise from constricted supply

ROE & Debt: ROE falls south of 9% ROE falls to ~11.5% ROE remains just shy of 14%

Book Value: AER marks down fleet by 15% Fleet retains projected value Fleet retains projected value

Conclusion

AER is uniquely positioned to benefit from the global re-fleeting of the airline industry because:

Opportunistically buying and selling aircraft; shows proactive managementAn interest rate hike could be a catalyst as their peers are less prepared

Air traffic is a growing market as the middle class is growing a flying: Middle class to grow from 2.9 billion to 4.9 billion in 20 years (CAGR 3.44%)

Increasing Demand for Operating Leases: Over the past 20 years, the world fleet has doubled with the leased fleet quadrupling

Thank You!

Appendix

Liquidity

Comparable Companies

Revenue Build

Income Statement

Income Statement Drivers

Balance Sheet I

Balance Sheet II

Balance Sheet Assumptions

Cash Flows I

Cash Flows II

Valuation I

Valuation II

Valuation III

Valuation IV

Hedging