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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day and welcome to the AerCap Holdings and the Fourth Quarter 2020 Financial Results. 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, sir.
Thank you, operator and hello, everyone. Welcome to our fourth quarter 2020 conference call. With me today is our Chief Executive Officer, Aengus Kelly; and our Chief Financial Officer, Pete Juhas.
Before we begin today's call, I would like to remind you that some statements made during this conference call which are not historical facts, maybe 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 such 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 March 2nd, 2021.
A copy of our earnings release and conference call presentation are available on our website at aercap.com. This call is open to the public and is being webcast simultaneously at aercap.com and will be archived for a replay. We will shortly run through our earnings presentation and we'll allow time at the end for Q&A. As a reminder, I would ask analysts that they limit themselves to one question and one follow-up.
I will now turn the call over to Aengus Kelly.
Good morning, everyone. And thank you for joining us for our fourth quarter 2020 earnings call. I'm pleased to report another strong quarter of cash collections for the company, where we continue the significant progress we made in Q3. Operating cash flows in Q4 were almost double the Q2 level. So while we expect the airline sector has a couple of choppy quarters ahead of us, the resilience and necessity of this industry to the global economy is clear from our operating cash flow numbers.
With 2020 now in the books, we are focused on returning the business to healthy levels of profitability and executing on the growth opportunities that are in front of us as the vaccine rollout gains traction and as the health of our airline customers continues to improve. Given this, we believe that the worst effects of the pandemic are firmly behind the aviation industry. And at AerCap, we are looking to the future with increasing confidence.
Our conviction is based on the fact that airlines are implementing new strategies that will be required to succeed in the post-pandemic world. The first priority for all airlines is to deleverage their balance sheets and increase their fleet flexibility going forward. Both of these objectives mean asset-light balance sheets for the airlines.
On our last earnings call, we highlighted that AerCap has significant growth opportunities in the post-pandemic world. We strongly believe that this is the case and these opportunities are materializing now. So the four things I want to focus on for today's call are; one, the significant structural shift towards leasing aircraft, as airlines look to rebuild their balance sheets, creating significant growth opportunities. Two, the importance of the vaccine rollout and impact of vaccine passports. Three, the resilience of consumer demand. Four, we remain completely focused on disciplined management as we navigate the pandemic.
Regarding the structural shift to leasing aircraft, it is clear that the pandemic has had a lasting impact on many airlines' balance sheets. And so their appetite for deploying large amounts of scarce capital to aircraft purchases will remain muted for some time. The priority will be to repay debts or government subsidies, not to send money to the OEMs. This will result in an increased dependence on accessing the lessors' orders books for new aircraft and also for lessors to execute sale-leasebacks of their existing aircraft.
The sale-leaseback channel is used not only to finance their new deliveries, this channel is also an effective way for airlines to raise capital from their existing fleets. We see this trend as a tailwind for AerCap in 2021 and beyond. We are pleased to report that we've begun to capture opportunities in this market recently, agreeing LOIs for 10 aircraft to be delivered over the next 18 months.
These transactions take time to bring to fruition. However, I believe the opportunity will be even greater when the OEMs get back to delivering aircraft in significant numbers. Airlines will not repair their balance sheets' overnight. And so the flexibility that comes from leasing will remain attractive to airlines for years into the future, such that we see a number of very strong years ahead for the industry.
Secondly, with numerous successful vaccine rollouts taking place around the world, and end the pandemic is incise. Of course, it won't be a seamless or linear return to normality, given the sheer scale and complexity of administering a global vaccination program. And not every airline will make it through unscathed, but we believe they will get there.
In the last two months alone, over 250 million vaccine doses have been administered around the world. This is likely to grow exponentially in the coming months, creating an inflection point, as further government approvals of new vaccines take place, and significantly greater supply enters the markets, which can only be good news for the airline industry.
The vaccine rollout is also shaping our conversations with customers who are void by the improving sentiment. The improved outlook gives consumers the confidence to book further ahead, improving the cash flows of the airlines immediately. It has also helped a number of airlines to raise capital on more attractive terms. There have been a number of other positive initiatives, like the clean corridors, which were trialed by several US majors, and the rollout of health passports and certificates.
In the last few weeks, Iceland became the first country to issue vaccination certificates to citizens who have had both vaccination doses, with Poland following shortly after. Other countries reliant on tourism like Spain, Portugal, Greece, Cyprus, Denmark and Sweden are also putting their support behind the initiatives as well as the European Commission. Separately, IATA has rolled out a health passport app to help airlines with the administration around this, with 20 airlines taking part in the initial trial and many more likely to adopt it in the coming months.
Third, on the passenger side, which is what ultimately drives the airline industry. We see no reduction in the desire to travel going forward. The consumer wants to travel. If anything, the recent travel restrictions have heightened the desire to travel and we believe there will be a strong snapback in demand as restrictions are eased over time. We witness the impact of this most clearly in Europe, the US and China during the summer of 2020.
For example, in Europe, air travel increased from 2,000 daily flights to over 18,000 flights in just four months, showing the pent-up demand created from the first lockdowns. This was shown once again in the UK last week, when Boris Johnson outlined their roadmap for reopening air travel. Tour operator TUI said reservations for popular European holiday destinations increased six-fold overnight. EasyJet also noticed a four-fold increase in ticket sales. And lastly, we want to make it clear that we remain highly focused on managing the growth potential of the business and increasing shareholder value with every decision we make.
In terms of capital allocation, which we are often asked about, we continue to review all options. Please know that any decision on this front will be made in keeping with managing the business for the long-term and maintaining the strongest possible balance sheet. As you've heard me say the best way for a company to navigate a crisis like the pandemic is from a position of strength. Over the past year, we have done exactly that. Despite all the turbulence this pandemic has thrown at the industry, I am pleased by how well AerCap has managed its way to the crisis.
In the fourth quarter, our operating cash flow increased the further 21% to $653 million, representing a doubling of operating cash flow from the Q2 levels. Our cash collection rate for Q4 improved to 96%. And this strengthening cash flow profile wouldn't have been possible without the extraordinary work of our employees around the world. We've had a relentless focus on cash collection.
Additionally, on the deferral side, I'm encouraged that the level of support being requested reduced sharply in the fourth quarter. In fact, over the period, our deferral balance increased by only $5 million. As I said many times, the airlines will be in a position to pay their cash expenses long before they are profitable. And this has been borne out in our results. So while our profitability has clearly been impacted during the last couple of quarters. It's notable that our cash generation has remained solid. This places us in a very strong position to offer helpful solutions to our airline customers coming out of the crisis.
Importantly, we've especially strong balance sheet, we've gained this position by taking a series of deliberate steps over the course of 2020. These included extending duration of our desk, accessing very competitive financing from multiple sources, and maintaining our investment grade ratings with all three major rating agencies, all of which will have positive benefits to shareholders into the future.
These factors have also supported our placement activity in the fourth quarter, during which we signed lease agreements for 22 narrow bodies, and 9 wide bodies. This included significant multiyear extensions and long-term lease agreements on narrow and wide body aircraft. In addition, we've signed lease agreements for further 24 aircrafts since year end, and closed 5 further sales, including 3 wide bodies.
So in summary, it is clear that the worst is behind us and while there may be some choppiness for the industry, and accordingly for us in the next couple of quarters, it is clear that a number of growth opportunities are before us. We've already begun to deploy a small amount of capital into sale-leasebacks the first time we've done so since 2013 and we won't hesitate to act on other attractive opportunities as they arise. We've always managed the business with the long-term in mind. And with a backdrop of increased demand for leasing, vaccination rollouts continuing a pace and confidence in the return of consumer demand, we see a bright future for the industry ahead. AerCap has a robust balance sheet, deep customer relationships, and a strong track record to take advantage of these opportunities.
I'll now hand the call over to Pete for a review of the financials.
Thanks, Gus. Good morning, everyone. In the fourth quarter, AerCap generated net income of $28 million or $0.22 a share. Net income for the fourth quarter was affected by a number of items, including a cash accounting impact of $117 million, loss on debt extinguishment of $76 million, and loss on investment of $29 million. The cash accounting impacts related primarily to airlines that are in restructuring or bankruptcy.
The loss and debt extinguishment related primarily to the premiums we paid on the debt tenders that closed in October and December. And the loss in the Norwegian investment in the fourth quarter was offset by maintenance revenue related to the termination of Norwegian leases during the quarter. We sold the remainder of our Norwegian shares during the first quarter so we're now fully out of that position.
Our total revenues for the fourth quarter were $1,032 million compared to $1,257 million for the fourth quarter of 2019. Total revenues for the full year were $4,494 million, down 9% from $4,937 million for the full year 2019. Basic lease rents were lower in the fourth quarter due to lease restructurings, aircraft transitions and the impact of airline bankruptcies. This includes the impact of cash accounting, which as I mentioned, was $117 million for the quarter. Maintenance rents were $110 million in the fourth quarter, which was a decrease from $133 million in 2019, primarily due to lower end of lease compensation recognized during the quarter.
In terms of aircraft sales during the fourth quarter, we sold 12 of our owned aircraft for a total of $97 million. The average age of the aircraft we sold was 21 years old, and our net gain on sales for the quarter was $14 million. For the full year, we sold 46 aircraft for a total of $613 million and generate gains on sale of $90 million. Both were lower than 2019 due to the lower volume of sales in 2020. And the other income was $22 million for the fourth quarter, mainly due to higher interest income.
Despite the increase in travel restrictions in the fourth quarter, we saw another significant increase in our cash collections as Gus has mentioned. Our operating cash flow for the quarter was $653 million, a 21% increase in the third quarter and more than double that of Q2. This took operating cash flow for the full year 2020 to over $2.1 billion. The vast majority of our customers continue to pay us every month. And during the fourth quarter, we saw a meaningful reduction in new deferral requests. Our deferral balance was $490 million as of December 31st, which was a $5 million increase over September 30th.
Trade receivables decreased by $19 million during the quarter. So on an overall basis, including both accounts receivable and deferrals, we had a net decrease of around $15 million. Our cash collection rate continues to improve and was 96% for the fourth quarter with no adjustment for deferrals.
Turning to the next slide, other expenses. We had asset impairments of $27 million in the fourth quarter, which related to lease terminations and asset sales, and were partially offset by maintenance revenue. As I mentioned last quarter, having completed our comprehensive full fleet impairment review in the third quarter, we don't expect any significant further impairments as we're comfortable with the cash flows and associated book values of our fleet. It's worth noting that the impairment analysis to be carried out in the third quarter was done before any vaccine announcements came out, and we remain comfortable with the assumptions we made.
Our SG&A expenses were around $64 million for the fourth quarter, which was about 10% lower than the fourth quarter of 2019. For the full year 2020, our SG&A expenses were around $242 million, which was a 9% decrease from 2019. Our maintenance rights expense was $6 million for the fourth quarter, down from $25 million in 2019. And this was primarily driven by lower maintenance rights, asset balance and the level of maintenance activity during the quarter. Other leasing costs were $85 million for the quarter, an increase from $62 million in 2019, primarily due to higher expenses related to lease terminations.
As a result of all the actions we've taken to-date, and the improvement in our cash flows, we ended the year with a very healthy liquidity position. Our total sources of liquidity were $9.1 billion, resulting in the next 12 months sources-to-uses ratio of 2.3 times which is well above our target of 1.5 times. Our excess cash coverage was also high at $5.2 billion.
We continue to maintain a very strong balance sheet. Our leverage ratio is currently 2.6 to 1, which is below our target ratio of 2.7 to 1 and is in line with where we began 2020. Our secured debt percentage continues to remain low at 26% of total assets. We currently have around $26 billion worth of unencumbered assets. In January, we raised $1 billion of 5-year senior unsecured bonds with a coupon of 1.75%, the lowest coupon in this company's history. This reflects the prudent actions we've taken and we'll continue to take in managing our balance sheet.
So in closing, 2020 was the most challenging year in the history of aviation. And we've seen the impact of those challenges come through our results. Despite this, we ended the year with a strong balance sheet with the debt-to-equity ratio that's the same as where we began the year and with a liquidity position that is higher than where we began the year and with funding costs that are lower than where we began the year. We also took a number of important proactive steps during 2020 to position the company for the future. So while we'll still see some ongoing impact of COVID-19, over the next few quarters, we enter 2021, well positioned to capitalize on future opportunities as the recovery continues.
And with that, operator, you can open up the call for Q&A.
Thank you. [Operator Instructions] And we'll now take our first question from Jamie Baker of JP Morgan. Please go ahead.
Hey, good afternoon, everybody. So Mark and I were wondering, a year ago, operating cash flow was projected at $3.1 billion, today, it's $2.4 billion. So call that a decline of about a third. And, you know, naturally some of that's going to be due to deliveries, you know, being pushed off and rent deferrals and as such. So, besides the variance in CapEx, the $2.4 billion guide today is up only about 13% from the $2.1 billion, you realized in 2020.
So I guess the question is, how much of 2021 rent recapture is being offset by loss rent to bankruptcy and lower lease rates, basically the improvement from $2.1 billion to $2.4 billion, what are the building blocks of that? Positives obviously include, deferrals being paid back, negatives include, you know, the bankruptcy, lower leases, the other stuff that you mentioned, any way to address that?
Yeah, sure, Jamie. So I think that the building blocks of that are, one, you know, we've got a number of airlines that are still in restructuring, and those will come back online during the course of the year. So we would expect them to start contributing operating cash flow during the year. So that will build up over time. And then you're right, we'll see some repayment of deferrals during the year. And then as we place aircraft that are currently AOG, right, that will build up as well.
I mean, I think that, you know, as we look at the $2.4 billion, we say that's a conservative estimate on our part, because we assume that while the recovery will continue, that, you know, it may not be a smooth line, right and we'll see some fits and starts of that. But that's really how we projected that. I mean, as you look at in general, winter tends to be weaker, as you know, right. And so we assume that just given some of the lockdowns that you still see in Europe and elsewhere that, you know, maybe, I'd say we were just conservative in our projection.
Okay. And as a follow-up any thoughts as to $53 million write downs and 7-year-old A330s? And why that's not a risk for AerCap?
Yeah, well, Jamie, first of all, we've been very clear about the portfolio strategy for many, many years, at all costs, avoid end of line airplanes. They're very tempting, because they give you a big lease rental for a short period of time. But if you have been buying A330s or 777s in the last five or six years, you're going to get what's coming to you.
Because those airplanes are going to be replaced, you won't get 25 years out of them. And you will have seen that we have been avoiding that very deliberately, for a decade. And, you know, it's what we've been warning you about. You can avoid near-term impairments while the airplanes are on lease. But once they come off lease reality bites.
That's excellent. Thank you, guys. I appreciate it. Yeah, go ahead, sorry.
And those, if you look at our own book, you'll see that we have, I believe it's in the appendix there, we have 3% of our fleets in A330s, which are all very old, and 4% of 777s, which are all very old and declining rapidly. And we've been very clear about that strategy for many years.
That's perfect. Thanks for that color, Gus. Really do appreciate it. Just wanted to clear that issue up, because, you know, it has percolated in the last couple of days. Thank you.
We'll take our next question from Ross Harvey of Davy. Please go ahead.
Hi, thanks for taking my question. Gus, despite the P&L difficulties in 2020, it's obviously quite pleasing to see the leverage still below target. And I'm just wondering has the excess capital begins to rise can you just talk to different capital deployment opportunities and how buybacks are de-levering when compared to the sales-leaseback opportunities you mentioned?
Sure, of course, Ross and look, clearly the focus in 2020 was to make sure we de-lever the balance sheet make sure was rock solid, the benefits of that manifested themselves in the 1.75% unsecured coupon we achieved quite recently. But that had to be done at that time. Now you're correct. As we go forward, the balance sheet continues to de-lever.
And I do believe that the suite of opportunities that are available to the company will be there for quite some period of time, because structurally, we just see the demand for aircraft leasing increasing, airlines will have to be asset-light - lighter companies going forward. They're already levered up coming out of the pandemic, we can't see them out anymore. And I think from our perspective, we are analyzing all the time, all the opportunities that are available to us in relation to distribution to capital.
That makes sense. And the follow-up, can I ask about the, you mentioned the positive marketing campaigns in the presentation at France so a lot of that momentum is carried into Q1. Can you just share our thoughts on where that demand is coming from? Maybe the economics or what aircraft are being favored? Any sort of insights would be helpful. Thanks.
Certainly, look, of course, you're not getting the same lease rentals as you would have got a couple of years ago. But the most important thing in the recovery of any market is liquidity, the worst thing that can happen is frozen markets. So liquidity is coming back. During the quarter, we delivered a couple of 787s that we've taken out of Norwegian, we sold a 787 since the quarter end, -8s we sold at 330. But we are leasing 320 737s. And, you know, the activity is coming out of Europe and North America, I would say and elsewhere.
So look, it's been fairly across the Board. There's been a lot of extensions too with customers. But I think again, it's that airlines are looking to the future and saying, they see the vaccine. Those that are well run, they see that it's coming. Yes, okay. It's going to be a choppy couple of quarters. But there is demand out there and they can see that. So you know, their view is, look, if I can lock in some attractive deals it's fine. I'm going to go and do it. And, you know, I presume we're probably leasing more airplanes than anyone in the world. That's our business, and we're the biggest datas.
Very helpful. Thanks, Gus.
Pleasure.
We'll take our next question from Helane Becker of Cowen. Please go ahead.
Thanks very much. Hi, everybody. And thank you very much for your time this morning. I just had a question about the shift to leasing. Can you make the argument that an airline should never own an aircraft and should just always lease aircraft?
I don't know like, there were very successful business models, Helane, on owning nothing, which I would point to say Wizz Air in Europe owns pretty much nothing. I would point to IndiGo in India, which owns pretty much nothing. Then at the other side, you have Southwest which has moved from complete ownership to starting to lease more.
I would say that, from an airline's perspective, owning the majority of their fleets is the wrong way to go. And shareholders should push back on it and say, is this the best you can do with our funds? Sit on money in metal for 20 years, you don't know the airplane market, but you'll trade airplanes, you're putting our equity at risk, invest in the business or give us back the cash. We don't want to see you making big bets on airplanes.
And you see the difference for an airline is. They have to order a large number of aircraft to get attractive pricing that will deliver four or five years or six years into the future. And the huge risk is that, the airline, most airlines are in their domestic markets. I mean, it could be - take Ryanair, Ryanair, look at Europe; that's their market grace, they bought airplanes the next six years. But the problem for Ryanair is, that's their market. That's their only market. They're not going to be able to go to North America. They're not going to Australia. They're not going to Thailand.
And so, if they get over their skis on the order book, yes, okay, they're financially strong enough to do it. But my point is, it really ties their hands. And what happens to these airlines so often then when they have a problem, which you don't hear about is, they go back to Boeing and Airbus in bended knee and say, please help us. The Boeing and Airbus say, well, okay, you could defer your deliveries but you're going to pay us an extra $2 million a year in escalation for the pleasure. And there's no free lunch with them.
And so I think with airlines, too often they get fixated with Boeing and Airbus on a large order, and they don't realize the risks that that entails. Now, Ryanair is one of the best run airlines in the world. So they'd be better at it than the vast majority, but the vast majority I believe, take outsized risk for the potential benefits that's coming at them. And yeah, okay. They could argue, well, if I lease the airplane, I have to pay a little bit more. Sure, but no airline ever went out of business for having too few airplanes. Plenty of them go out of business for having too many.
Yeah, exactly. So thank you for that. And then just as a follow-up, you mentioned, an inflection point is coming. And I'm wondering if you've thought about, you know, when that might be, especially in Europe, where, you know, you mentioned the comments that Boris Johnson and EasyJet and TUI, and so on, and I saw that too, which, I guess supposes May, mid May? I mean, do you think that the summer will be rescued? Or do you think vaccine rollout in Europe is still, you know, fall or late fall or early winter away?
I think in Europe, Helane, they'll get the - the vaccine rollout will be happening, I think they'll get that done. I think what the most important thing is the vaccine travel agreements, do you need a passport that is being discussed by the European Commission at the moment. And the idea is that, that would apply ideally to all the European Union and to the UK they're talking about as well.
I would say, the sooner that gets up will dictate whether or not there is a good summer for the European airlines that can start in June or an average summer that are less than average summer. That is August, September, October before they get anything and of course when you're back to school, September, October.
So like we said at the start, why we said at the start, Helane, look, the recovery is coming driven by the vaccines. But there could be a couple of quarters of choppiness depending on how the major markets implement the travel on the back of having vaccines distributed. And you know, on the long-haul market, the biggest one of all, by far is the North Atlantic market. That's the most important long-haul market in the world. And, you know, hopefully, we'll continue to see what has been fairly glacial progress so far, between the Europeans and the Americans. But hopefully, that will start to pick up now as well as there's greater visibility on the rollout of the vaccines.
Got you. Okay. Well, thanks for your help. I appreciate your answers. Thank you.
Very welcome.
We'll take our next question from Moshe Orenbuch of Credit Suisse. Please go ahead.
Great, thanks. You know, Gus, you talked a little bit about kind of the combination of you know growth opportunities and helpful solutions for airlines. I guess I was hoping you could put a little more, you know, more specifics around that. And as you look at now, do you see like this coming in the form of transactions for, you know, half a dozen planes at a time? Or are there going to be - is there still potential for kind of larger deals, you know, like you've done in the past and how you think about that evolving over the next few quarters?
I would think, Moshe, it's more than over the next few quarters, because what we can see is that the airlines now are coming out of 2020, the first quarter, of course, which has been the most difficult in our history. They're trying to say, okay, I need to simplify all aspects of my business, I need to become a more nimble business than I've been before.
Flight carriers and many other airlines are just huge employers very stuck in their ways. And this has shocked them all to the core. And flexibility starts with the fleet flexibility. And I think what you'll see is a simplification of fleets of major airlines, downsizing perhaps the number of shells, but very importantly, downsizing the different types of families of airplanes they have with the trust towards the newer type airplanes.
And when I say the growth opportunity, I may not be growing an overall number of shells, but there'll be growing within certain families of shells, I think that will happen. In terms of how that manifests itself and the size of the opportunity that faces us, I think it will be over the, I think it's something that will be structurally there for another year or two. Just think about somebody walking into a Board of an airline anytime in 2021 and saying, I want to buy 100 airplanes from Boeing and Airbus delivering in the next five years.
I just can't see any airline Board saying that sounds like a great idea. It would be very rare for them to do that, because of the leverage they put on their balance sheets. There are exceptions. There are airlines that do exceptions that had an extraordinarily strong position coming into the pandemic and we're able to absorb the additional leverage without threatening themselves. But I do think that what we will see is a greater reliance on lesser order books and the sale-leaseback channel going forward.
Okay, thanks. And as a follow-up, Pete, you know, given what you see now and recognizing, you know, where two-thirds of the way through the first quarter, the progress that you saw in the kind of net deferral balance? I mean, do you think that continues into 2021? You know, how that plays out? Maybe, you know, depending on, you know, if you could kind of frame it relative to, you know, the summer rebound?
Sure -
Potentially for some of these other not I guess, thanks.
So I think that the deferral balance, as I said, it was $490 million at the end of December. And I expect that we should continue to see that come down, right. So that will come down over the course of the year. I don't expect it to come down, you know, all at once. But I think, you know, gradually over the course of the year, we'll see that come down, there will still be some balance at the end of this year. But I think we should see steady progress in that.
Because remember, these deferral agreements, you know, these are agreements that we've reached with the airlines, and so to the airlines are honoring those and repaying according to those schedules. So based on those schedules, even if things - even if traffic recovery picks up faster, I would still expect them to be paying on those schedules, I wouldn't expect them to accelerate it. So we should see a gradual reduction in it during the course of the year.
Great, thanks very much.
Sure.
We'll take our next question from Andrew Lobbenberg of HSBC. Please go ahead.
Hi, there. Can I ask about what Gus was saying in previous quarters about how and you're expecting tourist capital to disappear from the sector? Is it going to happen? Or are the manifest attractions of the sector that you laid out in your presentation, you know, is at the risk that they can attempt in more new entrants. So we're going to get exit, getting M&A how to structure the sector kind of play out from here, please?
Well, as a glib comment, I'm dying to see tourists globally to start [technical difficulty] but to be more serious, when I referenced the tourist capitals that had entered aircraft leasing over the last few years, is a dumb so without the benefits of a platform is a dumb so in the belief that this was a spread business. And it had dumbed so in the belief because of the spread business, that the credit risk of a startup in India carry the same credit risk as US Treasuries. That has proven not to be the case. And it has hurt those more, who came into the sector, looking for that quick pickup in yield. But without willing to build a global platform or an infrastructure that was suitable to the level of risk they were taking on.
This is a difficult business to build a platform, that sub - the first subscale fleet, it doesn't justify us. So for example, a few 30, 40, 50 airplanes, you're at a level of risk where you do need to have some level of global coverage in order to manage that portfolio. But whether a portfolio that size can make it an economic investment is I don't believe is the case.
So what I do think we will see is those subscale players realize it, look, this isn't the business for me, I did like the business, maybe a better way to get in is on a managed fleet basis, if I want to be in it. But being outright bidders, against experts in the industry with global infrastructure, I think many will have said, that hasn't worked. And in that regard, is what I mean of the tourist capital leaving. And of course, you know, given the world that we're in today, plus if COVID, there may be other opportunities in other sectors, be it real estate or whatever for them to invest into.
Okay, thanks. And then the follow-up, I guess, as we see sort of progress towards maybe removing the tariffs on aircraft between the EU and the US, the fight with Boeing and Airbus. Does that make any difference to you guys? Or did you manage to navigate your way through it so the tariffs were irrelevant?
We can't comment on specifics between ourselves and Boeing and Airbus and the different markets are confidential, but what I can say is that, it is a necessity for both governments, the biggest exporter in the United States is the Boeing Company. Europe is an enormous market. There are tens and tens of thousands of US with high tech manufacturing jobs West High Tech manufacturing jobs dependent on us. It has to get resolved. There are no winners out of this. And the same is true the other way around.
And that Airbus is one of the biggest exporters in Europe and the US is a huge market for it. There are tens of thousands of jobs. And I know the people who run both of these businesses, I know that that's what they want to see. And the world is a better place for us when we have competition. The American consumer does not benefit from their airline not having a choice other than Boeing. And the European consumer does not benefit from the European from the only choice for their airlines being Airbus equipment. So I would be hopeful that this will get resolved. There are no winners on the manufacturing side or the consumer or the average Joe paying its taxes. It's just degrees of loss.
But you're optimistic because -
I am. I think they will, particularly COVID when you know if you're realistic about Boeing. I don't see the Chinese market last night. They didn't approve the Max. That's another big market shock. I think to try and shoot the European market too would be naive in the extreme.
Fair enough. Thank you.
And we'll take our next question from Catherine O'Brien of Goldman Sachs. Please go ahead.
Hi, there, thanks for the time. A slightly different take on the competitive environment question. You know, with the seemingly significant opportunity to deploy capital into the sale-leaseback market, I was just hoping to hear an update on the competitive landscape there. I know we were already seeing some participants' pullback before COVID. And for a period last year, some of the debt markets' certain lessors used to finance their growth or not open. So how do you see the competitive set that actually has available dry powder to execute on the sale-leaseback field available in the market today versus what that competitive sale-leaseback market looks like pre-COVID? Thanks.
Well, Catherine as I said, I don't believe that you will have as many people chasing and as you did pre-COVID because there were the aforementioned tourists were present. Now, what I do believe going forward is that, until we see the OEMs ramp up the deliveries, the opportunity in the sale-leaseback market is still reasonably limited. You have to remember, Boeing aren't really delivering any airplanes at the moment. And Airbus will struggle to deliver to their targets for this year as well. I just don't see that. And so it will be something that will be with us for I think several years into the future.
Okay, understood. And then maybe more of a modeling one for my second question. Any view on what 2021 CapEx will be this year? Are you still thinking $1.8 billion is the right number? And you know, if so at this point, I think there's upside or downside risks that due to either OEM delivery risk or incremental sale-leaseback opportunities, respectively? Thanks for the time.
So for 2021, I think cash CapEx, Catie will be around $1.5 billion and total CapEx so if you include you know the delivery, at delivery, what will it be $2.1 billion that includes the use of PDP so we have already gotten the balance sheet. I think that you know of that $1.5 billion could some of that slide I think there's a possibility more likely than not that that slides, but for now that's our best estimate as to what it will be. And then, Catie we may pick up some other stuff along the way as well in terms of sale-leaseback et cetera. That won't be material.
Understood. You said it will be material or won't be material? Sorry.
No, it won't be, won't be, won't be.
Understood. Thank you very much.
Sure.
We'll take our next question from Ron Epstein of Bank of America. Please go ahead.
Yeah, good morning. Good afternoon. Gus how are you feeling [technical difficulty]
Because they more, you know, will they all slide at some period of time further than the current delivery date, I expect that will be the case. And then we'll negotiate with Boeing and what to do next. But it's a difficult time ahead of them. I'm sure they'll get through us. And in summary, I would say that those 787s could slide a bit to the right.
Yeah, and then if I can, maybe a follow-on. On a previous call, you had mentioned that you know with fuel prices where they are and the cost reduction programs at the airlines, that you expected that the airlines could cover their cash operating costs at around 60% of 2019 air traffic levels. Now fuel prices have gone up. So if you were to rejigger that equation with fuel prices where they are now, how much the 2019 traffic you think we need to cover the cash operating costs at the airlines?
I still think we'd be in the mid 60s there, Ron as well, you know, that comment I made was in reference to last year, you know, I think we can see yields getting a little bit better out there as well. But I would still say we'd be in the mid 60s or so.
And to be fair you know -
And then -
Fuel prices like more than - kind of reflective of a more optimistic outlook in the global economy.
Got it, got it. And then if I can just squeak in one more follow-on. China Eastern placed an order for a firm order for C919s. What do you think about the 919 as a platform? When would you guys ever want to finance those?
Look, I think, Ron the C919 is the first important step for Chinese aviation to compete someday with Boeing and Airbus, and it has to be done, you have to start somewhere. It was the same for both of the two Boeing and Airbus that they had to start somewhere. And it obviously needs domestic market to seed itself to trial itself. And I think is likely that over the next 40 years or so we might see a family of airplanes that may compete with Boeing and Airbus, but that's what it takes.
You know, in the late 1980s, the A320 was launched. And that was after many, many years of effort from the Europeans to create Airbus. So I think there's a long road ahead before we see a family of airplanes coming out of China, but I've no doubt they'll get there. And this is a very important milestone on that trip.
Great, thank you so much.
We'll take our next question from Koosh Patel of Deutsche Bank. Please go ahead.
Hey, good morning, guys. I wanted to talk about your order book and how wide bodies will fit into the portfolio with longer-term. You've spent some time I guess talking about the shift from owning to leasing. And when I looked at your current order book, it's primarily weighted towards the narrow bodies. But just wanted to get a sense of you know, where on the next cycle, you kind of see the wide bodies coming back into favor? Just seems like there's you know a large number of wide bodies parked in 2020. And most of the lessor capital seems to be focused on investing in the narrow body space. So just wanted to see if there comes a point where the economics begin to look attractive and you know, maybe what are some of the factors that would cause you to look to place an order?
Certainly, I mean, we obviously are a very big lessor with a lot of white bodies. Now, when you look at our order book, there's only 23 white bodies left at 286 aircraft. That's because just the 787 program, which has been the backbone of our white body order book started delivering much sooner and you had delivery delays with the A320 Neo, delays at the 737 Max. Otherwise, a lot more of these airplanes would have delivered into our portfolio.
But look, we're a big believer in the white body markets. For sure it's been here, of course, by the - particularly the lack of international long-haul travel, but that will come back. And for sure, the wide body market will come back. And we will be very confident in the 787-9 in particular. And that'd be the most popular and then on the Airbus side, the best seller they have is the A350-900.
And they'd be the two airplanes I think that the very large aircraft, the 777s, the 777Xs, A380s, they take a little bit longer for those assets to find a sweet spot. But I think we'll be surprised, you know, people will want to go on long haul holidays trips of a lifetime. And I think we're going to see that. So yeah, definitely. We're big believers in the wide body market when you're in the right ones.
Okay. And then can you just give us an update on just where you're at on remarketing the aircraft coming out of Norwegian or whether you've completed all those?
Sure we've leased 2 787s already and delivered those 2. And then we've signed LOIs for several more. They'll have to be converted into lease contracts. But that's where we stand on those aircraft. Again, look, the 787s are assets that have a long-term future ahead of them, and we will lease those assets.
Okay, thanks a lot for the call - for the time guys.
You're very welcome.
And there are no further questions at this time. I would like to hand the call back to our host for any additional or closing remarks.
Thank you all very much for your time today. And we look forward to talking to you in three months. And you know, maybe God will, we might actually see some of you in person before that happens. Thanks very much.
Thank you. That now concludes the call. Thank you for your participation. You may now disconnect.