Boc Aviation Stock

Ladies and gentlemen, welcome to BOC Aviation Limited's 2026 Interim Results Conference Call. I will now hand the session to Mr. Timothy Ross to begin today's presentation. Mr. Ross, please begin.

Thanks, Vincent, and welcome, everybody, to BOC Aviation's earnings call to discuss our interim results for the 6 months ended 30th of June 2026. With me today are our Chief Executive Officer and Managing Director, Steven Townend; our Chief Operating Officer, Tom Chandler; and our Chief Financial Officer, Wen Lan.

Please note that some of the information you'll hear during our discussion today may consist of forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. You should not place undue reliance on any forward-looking statements, and you should review our results announcements for full details.

Please also note that all currency references in today's call are in U.S. dollars. A copy of our earnings announcement is available both via the Hong Kong Stock Exchange and in the Investors section of our website at bocaviation.com, and the conference call presentation is also available in the Investors section of our website. This call is being recorded and will be available for replay from our website within the next 24 hours as is a transcript of today's discussion.

I'll now turn over the call to Steven Townend for his comments.

Thanks, Tim, and thank you to everyone for joining us today. We are pleased to report net profit after tax of $357 million for the 6 months ended 30th of June, equivalent to earnings per share of $0.51. This is a 4.4% improvement on first half 2025's net profit after tax of $342 million.

Our Board has declared an interim dividend of $0.1799 per share, payable on 14th of October to shareholders of record on 25th of September. This represents 35% of reported net profit after tax for the first half, an increase from last year's interim payout ratio of 30% and follows the higher full year distribution guidance of 40% of net profit after tax. Our total revenues and other income rose 4.4% to $1.3 billion in the first half of 2026. As at 30th of June, we had total assets of $27.8 billion and net assets per share of $10.13.

The first half of 2026 saw continued improvement in aircraft production and deliveries. Boeing and Airbus delivered a combined 665 aircraft in the 6 months ended 30th of June, a 13% increase compared with the same period in 2025. While combined aircraft production output and values in 2026 are expected to surpass 2018 levels for the first time, the increase is being driven by the narrow-body segment with wide-body production still expected to lag 2018 levels.

Taken together with increased demand for predelivery payment financing, this improved supply of deliveries enabled us to increase our investment in new aircraft by 21% compared to the first half of last year and positions us well to exceed our 2026 CapEx guidance of $4.5 billion.

Global passenger traffic continued to expand in the first half, although most of this occurred during the first quarter of the year. In total, traffic grew by less than 1% in the first half compared with around 5% in first half 2025, reflecting renewed geopolitical disruption in the Middle East.

Excluding Middle Eastern markets, however, passenger traffic increased by more than 3% in the first half, evidence of the resilience of global demand. As well as affecting selected passenger and cargo traffic flows, the situation in the Middle East has contributed to higher energy prices, driving a 65% increase in the average price of Singapore jet kerosene in first half 2026.

Despite this, demand remained resilient outside the most directly affected travel corridors with strong load factors and fare increases in many markets helping airlines partially offset higher fuel costs. Although BOC Aviation has no direct exposure to jet fuel, the price increase is important for our airline customers as it now accounts for approximately 31% of their operating costs, up from 25% last year.

In June, IATA reduced its 2026 industry profit forecast from $41 billion at the start of the year to $23 billion. It also now expects passenger traffic to increase by around 2% for the year compared with its earlier forecast of closer to 5% growth. While at $152 per barrel, its average jet kerosene price assumption is 72% higher than its previous estimate.

However, despite this operating -- difficult operating environment for our customers, our cash collection rate remained high at 99.2% in the first half of 2026, contributing to operating cash flow net of interest of more than $800 million. We ended June with $319 million in cash and equivalents and $6 billion in undrawn committed credit facilities, giving us total available liquidity of $6.3 billion.

Interest rates have a major influence on our own cash costs. During the first half, our blended average cost of funds remained stable at 4.4%, supported by our strong investment-grade credit ratings and continued access to diverse debt funding sources.

We took advantage of a supportive bank market, our industry-leading credit spreads and currency arbitrage opportunities to lock in attractively priced financing and used our enhanced liquidity pool to finance aircraft investments and prepay maturing debt.

As geopolitical uncertainty increased earlier this year, we intentionally lifted our available liquidity to around $8 billion at one point as we anticipated the potentially negative effects of airspace closure and higher jet fuel prices on our airline customers' cash flows and earnings. This has allowed us to deploy comparatively low-cost capital in support of additional financing opportunities with around 40% of the first half's capital expenditure originated during the period.

Our largest transaction at the half and an excellent example of this approach was the 3 A350 aircraft purchase and leaseback deal executed with Qatar Air at the end of June. We expect to see even greater airline demand for funding for both aircraft deliveries and predelivery payments during the second half of the year as they look to conserve cash and bank lines.

I'll now hand the call over to Tom for a review of our company's operations and later, Wen Lan will talk more about our finances.

Thank you, Steven. Our operational and business development report is as follows: we delivered 24 aircraft and 1 engine during first half 2026 and signed 33 lease commitments. As of the end of June, our total portfolio stood at 811 aircraft and engines, comprising 479 owned aircraft and engines, 11 managed aircraft and 321 aircraft and engines on order, representing future committed investments of $17.6 billion.

Our order book comprised 320 aircraft scheduled for delivery through to the end of 2032. All aircraft scheduled for delivery before the start of 2028 have been placed with airline customers, underscoring continued strong demand for access to new technology aircraft.

The additions to our portfolio in the first half comprised a higher proportion of wide-body aircraft, which contributed to the increase in capital expenditure compared with the same stage last year. Manufacturer delivery delays have stabilized with aircraft broadly delivering on schedule. The industry nevertheless remains capacity constrained and supply chain challenges continue to pace the planned delivery increases by the manufacturers.

All of our owned aircraft were on lease generating revenue for the entirety of the first half, representing the third consecutive reporting period for which we have maintained owned aircraft utilization at 100%. The weighted average age of our owned portfolio was 5 years at the end of June and continues to be one of the youngest in the aircraft leasing industry.

We also continue to have one of the industry's longest weighted average remaining lease terms for our owned portfolio at 7.7 years, and more than 86% of our owned portfolio consisted of latest technology aircraft. This fleet has a net book value of $19.4 billion, while its appraised current market value is 17% or $3.3 billion higher.

We sold 8 owned aircraft with an average age of almost twice that of the remaining fleet as well as 5 managed aircraft in first half 2026 as we continue to capitalize on strong demand for used aircraft. Sales of aircraft added $69 million to first half revenues, a 14% increase compared with last year, with a gain on sale margin of 32%, which is substantially above our long-run average of approximately 9%.

Our disciplined approach to portfolio management, along with new aircraft additions contributed to a further increase in our lease rate factor to 10.4%, although the impact of those new aircraft additions was muted by back-ended delivery timing. Net lease yield also improved to 7.6%, reflecting a stable cost of funds, while core lease rental contribution reached a record $388 million, an increase of 13% from the $342 million in the first half of 2025.

Reviewing our ESG targets, we continue to maintain a diverse leadership and employee base with female representation standing at 2 members of our Board, 33% of management and 49% of the workforce as of 30th of June.

We increased our engagement with our local communities in the first half with employees contributing close to 550 volunteer hours through 8 corporate social responsibility initiatives across our global offices. This represented a 74% increase in volunteer activity and more than 60% of our workforce participated in activities supporting 9 charitable organizations and community courses.

These activities continue to focus on food security, social inclusion and well-being, community welfare and environmental stewardship. In support of our commitment to the aviation industry's sustainability goals, we made our first purchase of sustainable aviation fuel certificates as part of our program to abate our emissions from business operations.

That concludes the overview of our operations and business development for the 6 months ended June 2026. And with that, I'll now turn it to Wen Lan for a deeper review of our financial performance.

Thank you, Tom. As Steve mentioned earlier, we reported net profit after tax of $357 million for the first half of 2026, equivalent to earnings of $0.51 per share. Total revenues and other income rose more than 4% to $1.3 billion compared with the first half 2025, primarily due to higher lease rental revenue, partly offset by lower other income.

Operating lease rental income increased by 6% to $988 million, reflecting an improvement in the lease rate factor to 10.4%. Finance lease revenue again contributed strongly, up 8% to $141 million as finance lease receivables increased to $4.6 billion and represented 19% of total aircraft assets at the end of the period.

Our gains on aircraft sales rose by 14% to $69 million compared with the first half of 2025 as higher profit per aircraft sold more than offset the lower number of aircraft sales with 8 aircraft sold in the first half 2026 compared with 18 in the same period last year.

Other interest and fee income was ahead by 20% to $78 million in the first half 2026, driven primarily by higher fees earned from financing predelivery payments, which contributed $64 million, a rise of 28% compared with the first half 2025. Other income fell 57% to $21 million compared with the first half of 2025, mostly due to the absence of insurance proceeds.

Looking at costs. Total costs and expenses rose by 4% to $866 million from $836 million in the first half 2025. Depreciation, our largest expense increased by 4% to $405 million, mainly due to the growth of our fleet.

Finance expenses, our second largest item, rose by 3% to $377 million. Our blended average cost of funds remained stable at 4.4%, while gross debt was around 8% higher at $18.5 billion as we continue to invest in new aircraft.

There was no impairment of aircraft values in the first half 2026. Elsewhere, our effective tax rate rose to 17.3% from 15.8% in the first half 2025, reflecting higher pretax earnings and a greater proportion of business conducted in higher tax jurisdictions.

Moving to the balance sheet. We ended 30th of June 2026 with total assets of $27.8 billion, funded by total debt of $18.5 billion. Total net debt rose another $186 million to $7.0 billion as at 30th of June. This was mainly attributable to profit for the period, which was partially offset by $212 million in dividend payments.

We closed $2.5 billion of new loan facilities and issued $800 million of notes under our global medium-term note program. This, combined with operating cash flow net of interest of more than $800 million helped fund $2.3 billion of capital expenditure and repayment and prepayment of $1.6 billion in debt.

Our gross debt-to-equity ratio was 2.6x, and both Fitch and S&P reaffirmed our A- credit rating in May 2026. In the second half of 2026, we have only $200 million of debt obligations scheduled for repayment with committed aircraft capital expenditure of $1.8 billion.

I'll now hand the call back to Steven for his closing remarks.

Thanks, Lan. We're proud of the results that we've delivered in first half '26 and believe that they demonstrate the benefits of our disciplined approach to fleet growth, our financial strength and our capacity to identify global opportunities. They also reflect the hard work and dedication of our team and the support of our Board, our counterparties and our investors.

With 23 aircraft already placed and scheduled for delivery in the second half as well as over $6 billion of investment firepower, we expect to continue delivering on our growth targets. We are pleased to note that this consistency has contributed to a 10% outperformance in total equity return this year when compared to the Hang Seng Index.

Our improved earnings, our strong balance sheet and our enhanced distribution policy enabled us to increase the first half dividend by 22% compared with first half 2025, which should also support continued investor returns.

Today, our order book and other purchase commitments represent $17.6 billion of future committed CapEx, and we will add to that by providing further financing to support our global airline customer base and to achieve our target of $40 billion in assets by the end of 2030.

With that, I conclude our review of the industry, our company's financials and our outlook, and I'll pass the call back to Tim.

Thanks, Steve. This wraps up management's formal commentary. We now have time for Q&A. [Operator Instructions] I'll hand the call back now to the operator for the Q&A session.

[Operator Instructions] Our first question comes from Shannon Doherty from Deutsche Bank.

So you maintained a very strong cash collection rate at 99.2%, while perhaps some other lessors may be seeing some short-term pressure to the higher jet fuel prices. Would you attribute this to your strategy of leasing newer technology aircraft or maybe lease duration or perhaps the quality of your customer base? Any thoughts here would be great.

Shannon, it's Steven. I think it's a number of things that contribute to that. The -- firstly, it's the selection of customers, and we've always been very focused on that risk analysis when entering into transactions. I guess it's the background that a number of our senior team have as well as the fact that our largest shareholder is a large bank keeps us very focused on business from a risk perspective.

But also, we actually have the approach of being very proactive on collections. And our senior management team get an e-mail every morning that tells us about anyone who is more than 1 day overdue on any payment. And then we have a very proactive process for how we follow up on that and work that through the company.

So I think the combination of those two things is very important, backed up, as you say, by the fact that we have one of the youngest fleets in the industry with an average age of just 5 years old.

Makes sense. That's great. And are you seeing an increase in financing requests from any airline customers given the volatile macroeconomic backdrop?

Yes, we are. Clearly, when fuel prices is up by this much, not all airlines are able to fully pass that through. And therefore, they look to conserve both cash and bank lines at this point in time. And we see that in two ways. We see that in people looking to raise immediate liquidity. And so that's some of the purchase and leaseback activity that you've seen us doing. But we also see customers wanting to minimize cash going out of the door.

And in particular, where we've been active there has been funding predelivery payments to the manufacturers because as deliveries start to ramp up, they have greater calls on their airline customers for those payments and airlines looking to conserve cash are looking for people who will fund that. And that's been a key part of what we've done for many, many years.

And so yes, as I said in my prepared remarks, we've seen development across all of our different business lines in the first half of this year.

Next question comes from Douglas Runte with Deutsche Bank Securities.

Two questions from Deutsche Bank. I think there may be a former [ iStack ] director on the line. So I'll ask a question about your commentary about your premium to appraised value.

I'm wondering if you could give a little bit more granularity on that. Is that market value, base value, lease encumbered value? And I may have missed the footnote, which appraiser are you using in that assessment, just given the variability of appraiser numbers?

Doug, it's Steven. Yes, we're leading off with double Deutsche here.

So the process that we go through for that, so every 6 months, we run a full appraisal of our fleet as part of our impairment analysis. And what we do is that we get appraised values for each aircraft individually from each of our panel of 5 appraisers. And then to avoid some of that variation that you talk about, we drop out the highest and the lowest and take the average of the remaining 3.

And for most aircraft that are returning with full life compensation at the back end, we're looking at base values. a small number of aircraft where we do look at current market values. But predominantly, it's base values. And so it's looking at the premium above that.

And I think it's also held out or held up by what we see in our trading gains as well in the first half, whereby the percentage we were achieving there was actually higher than that excess of appraised value over our own book value.

Right. That was very impressive. And then an aircraft question. Steven, you highlighted the A350 transaction. I'm wondering if you can talk a little bit into what seems to be a material move into very large widebodies. Clearly, opportunities in the space, but also risks with unique cabins, [indiscernible] coach, transition costs are very high.

I guess, how do you balance the risks versus the opportunities? And how big do you see the big wide-bodies becoming within your portfolio?

I think what you always have to remember, Doug, is that we've had wide-body aircraft in our fleet ever since we were established. The first aircraft we acquired back in the 1990s were wide-body aircraft. And so they've consistently been part of our portfolio. And more recently, we've had a large fleet of 777-300ERs, which I guess were the precursor to those aircraft.

And so we don't see it as a fundamental strategic change. I think all we see is that what we're doing as we are with the rest of our fleet is that as our fleet -- as individual aircraft start to age, we're selling them on. And we've been doing that both the wide-body portfolio and the narrow-body portfolio, and then reinvesting in the newer aircraft technologies.

And if we looked at our fleet 6 months ago, probably on the new technology wide-bodies, we were comparatively overweight 787s versus 350s. And really, what we've been doing is looking to balance that back up.

Across the portfolio today, we're about by net book value, about 65% narrow-body, 35% wide-body. And we see that continuing. As we said, we're actually seeing greater imbalance of demand versus supply right now for wide-body aircraft versus narrow-body aircraft, and we don't see that changing dramatically in the near future.

And look forward to welcoming you to the Deutsche Bank Aviation Forum in September.

Next question comes from Amy Chen with Citi.

I noted that your margin on aircraft sales actually hiked quite a lot in the first half. But then when we look at the number of aircraft sold in the first half year-on-year, it actually declined quite a bit. I'm just wondering, on a full-year basis, are we still aiming to sell mid-teens number of aircraft? How has our disposal strategy changed, if any?

Amy, I don't think our disposal strategy has changed. We don't necessarily think about it in numbers of aircraft. We think about it in terms of volume of dollars, so volume of investments that we are disposing of. And I don't anticipate that will change. I think similar to last year, we'll probably be $1.2 billion, $1.3 billion, $1.4 billion in terms of total dispositions.

We sell aircraft all the way through the cycle. And so in the same way as I was going back a very long way with my comments to targets exactly the same with our aircraft sales, and we've sold aircraft every year in each of the 25 years I've been with the company.

And that's how we've managed to make sure that today, despite having been around as a company for 33 years, the average age of our fleet is 5 years old and the oldest aircraft we own is only 13 years old. So we're constantly turning it over.

It's also what enables us to speed up that transition to latest generation technology. Today, we're -- over 85% of our fleet is latest generation technology. So I don't think you're seeing a fundamental change. All you're seeing is that we're continuing to sell those aircraft that are aging in the context of our fleet and also those where we see them running at lower yields than our portfolio average.

Got it. Perfect. And a follow-up on CapEx. We noted that, yes, you actually made $2.3 billion CapEx in the first half and you previously guidance was $4.5 billion for the full year. With potentially more financing requests from airliners, do you think there's an opportunity that you can exceed that full-year target?

I think there's an opportunity. We are maintaining our guidance in the same place because we don't have definitive transactions yet. As we said, we did $2.3 billion in the first half. We have $1.8 billion already committed for the second half, which should position us well to firstly achieve that guidance.

And if, as we talked about earlier, fuel prices stay high, and we continue to see the same volatility that we're seeing right now, I would expect that we will see some opportunities to go beyond that. We're not restricted to that number. We have the liquidity to go further. We have the balance sheet to go further. It's really then us looking at individual opportunities and deciding whether we want to do them or not.

Next question comes from Jason Sum from DBS Bank.

So my first question would be on your lease rate factor. So I noticed that the improvement this year is quite modest despite what remains a very tight aircraft market. I noticed that some of your competitors are reporting more meaningful improvement in lease sales. So I wanted to get some sense if you could provide some color on what is preventing your lease rate factor from moving higher more quickly? And should we expect the pace of improvement to accelerate from here?

Thanks, Jason. The change in lease rate factor depends on a number of things. But firstly, if we took delivery of 25 aircraft, 26 aircraft in the first half, and that's against a portfolio of nearly 500 aircraft; and so even if they're coming in at higher lease rate factors, you're not going to see a material change in any single period. If you're much smaller, then yes, the number of aircraft you bring in, in any period can move that more dramatically. And so I think we won't see steep jumps in any 1 year.

I think what you also have to look at as well is that we're starting to get now close to previous highs of lease rate factor that we've seen in previous cycles. The highest that we've seen historically was 10.8%, and we're back up at that 10.4%. So we're getting quite close to that.

And there's usually a point beyond which you can't just push this up to -- infinitely. It starts to plateau at some point. We're not sure yet whether we've reached that. But clearly, as we start to get close to all-time highs, it's going to slow down.

Great. Just one follow-up question on purchase and leaseback and [ PDPA ] financing. So with airlines facing greater financing requirements, could you maybe share if the returns on those transactions have improved maybe versus 6 or 12 months ago? Or maybe has competition among lessors largely constrained any form of improvement?

I guess what we always see when we get into this part of the cycle is that when you get more volatility, some of the less permanent capital isn't as attractive to the industry. And so the number of people competing does tend to change. And you will rarely see us doing a single narrow-body aircraft that delivers in the near term because there are lots of people who could maybe do that.

Typically, where you tend to see us being competitive and where we are closing transactions is where there's larger volume because there's fewer people that can do that. And so for example, when we did those 3 A350s, not many people can close on a deal of that size in that sort of time frame. And so that does reduce the competition and therefore, enables you to achieve better returns.

There are currently no questions in queue. [Operator Instructions] Next question comes from Shane Mathews with WhiteOak Capital Management, Mumbai.

Congrats on the results. Just wanted to ask on the engine transactions you announced over the last 1, 2 months, sizable deals have been placed. Just want to understand, one, the strategic rationale over here. What has changed now and why you think this adds more strategic fit for your, let's say, directionality going forward? And how much are you trying to spend over here? How should we think about CapEx amounts here at this point?

Okay. It was quite difficult to hear you there, Shane. I think the question was regarding the engine orders that we placed. Is that correct?

Yes, I hope this is better. I can repeat my question.

Yes, please. That is better.

Yes. Sorry, sorry for that. Yes, the question was just on the sizable engine orders you've been placing over the last 1, 2 months. Just wanted to understand, a, the strategic rationale over here. What are you seeing different at this point in time, which makes you want to do these orders as well? And two, how much are you planning to spend on engines? And should we expect future transactions as well going forward?

Okay. Thanks. The -- maybe I'll give a quick part of the answer, and then I'll let Tom just talk a little bit more about CFM and Pratt & Whitney.

So those engines are actually squarely aimed at going on aircraft that are delivering. So if you think about the fact that we have a 320 aircraft order book, we will need a lot of engines to hang on those wings. And so that is the real focus of those orders that we placed.

At the same time as we placed the aircraft orders, we didn't necessarily feel that, that was the best time to complete everything regarded in respect to the engines. And so we took our time to get that done and to get it right because the engines are one area where if you don't, you can actually lose a lot of money.

It's -- would you add anything there, Tom?

I think you covered the fundamentals there, Steven. Obviously, those arrangements come with various contractual provisions that are helpful and that we can pass on to customers, and that's part of the overall package. But as Steven said, fundamentally, the engine selections for the aircraft that we have on order from the manufacturers to place with the customers.

Your next question comes from [ Yifeng Wen ] with China Universal Asset Management.

I have two questions. The first one is about the rates on our financing. So if I look at the yield curve in the U.S., I mean, the U.S. dollar yield curve, the level actually have increased a lot during the second quarter. So my first question is, how would this impact our funding cost?

So I think what you've seen in the first half of this year is actually the average funding cost across our debt has remained very, very stable. I think we were at 4.5% at the end of last year and at 4.4% at the midyear. And part of that actually is to exactly your point, it's about the yield curve.

The -- we have today about 30% of our funding is floating rate. And so that's actually benefited from the fact that the short-term rates really haven't moved much in that time, whereas it's the longer-term rates that have gone up.

And it's also partly then why you've seen us in the first half of the year access more of our funding in the bank market rather than in the bond market, which by default tends to be fixed rate. And so that's always been part of the way that we build the liability side of the balance sheet. And we're very thoughtful and very careful about how we do that.

But if we're looking forward into the second half of 2026, are you expecting higher rates for our funding?

Clearly, it depends on what happens on interest rates. But as we move forward in the short term, there will be two elements or perhaps even three elements at play. Firstly, as you say, there's the shape of the yield curve and how that plays through.

Secondly, what we will continue to see less so in the second half of this year, but certainly still into next year, some of the funding -- the fixed rate funding that we raised 3 or 4 years ago at very low rates will continue to roll off. And so clearly, as we replace that, however we replace it will be with higher cost funding.

So there will be an effect of that. It will be minimal in the second half of this year because actually, I think we only have $200 million of funding that still matures in the second half that needs repayment.

The other side of this, though, to always bear in mind as well is what is happening on our lease book because everything that's already been delivered, really, the terms are locked in. About 85% to 90% of that is fixed rate, but 10% to 15% of that is floating rate. So that will continue to adjust as well.

But the key point to think about also when we're moving forward is that all of our future deliveries continue to adjust for interest rates until the point of delivery. So they're not static. And therefore, if we do continue to see longer-term interest rates move up, then that will also feed through into the new deliveries that we're taking as the -- when we fix those rates at the time of delivery, they will get fixed at higher levels.

Okay. My second question is about the dividend payout. So in first half 2026, our payout ratio is over 35% versus about a little bit less than 29% last year. So for the full year 2026 and beyond, should we expect the minimum payout to be 35%?

So to be clear, in the first half of last year, we paid 30%, which is what we've traditionally always done since we went public. And then what we did at the end of the year was to top that up. So the final dividend for 2025 was 40%.

What we've then done first half this year is pay an interim dividend at 35%. And we've stated publicly that our dividend policy is to pay up to 40% of full-year earnings. And so that is our stated policy. For many, many years, our stated policy was to pay up to 35%, and we always paid 35%. Our stated policy now is to pay up to 40% on the full year.

So let me rephrase my question. So if we paid higher -- if we had a higher payout in first half 2026 versus last year, are we -- should we expect higher payout than 40% for the full year of 2026?

So what we did historically was we had a policy of paying up to 35% for the full year. And at the midyear, we paid 30%. We now have a policy of paying up to 40% for the full year and at the midyear, have paid 35%. So actually, I think it's in line with what we've done previously.

As there are no further questions, I'll now hand the session back to you. Please go ahead, Mr. Ross.

Thank you very much, Vincent, and thank you, everybody, for your participation this evening. This ends the call for our interim results in 2026. If you have any follow-up questions, please don't hesitate to contact either myself or Kelly Kang. Our details are all over our collaterals, but you can get me at [email protected]. Thank you, and good night.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, welcome to BOC Aviation Limited's 2025 Final Results Conference Call. I will now hand the session to Mr. Timothy Ross to begin today's presentation. Mr. Ross, please begin.

Thank you, operator, and welcome, everybody, to BOC Aviation's earnings call to discuss our final results for the year ended 31st of December 2025. With me today are our Chief Executive Officer and Managing Director, Steven Townend; our Chief Operating Officer, Tom Chandler; and our Chief Financial Officer, Wen Lan.

Please note that some of the information you'll hear during our discussion today may consist of forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. You should not place undue reliance on any forward-looking statements, and you should review our results announcements for full details. Please also note that all currency references in today's call are in U.S. dollars. A copy of our earnings announcement is available both via the Hong Kong Stock Exchange and in the Investors section of our website at bocaviation.com and a conference call presentation is also available in the Investors section of our website. This call is being recorded and will be available for replay from our website within the next 24 hours as is a transcript of today's discussion.

I'll now turn over the call to Steven Townend for his comments.

Thanks, Tim, and thank you to everyone for joining us for our 2025 full year results earnings call. We are pleased to report net profit after tax of $787 million for the year ended 31 December 2025, equivalent to earnings per share of $1.13. This compared with net profit after tax of $924 million in 2024. However, adjusting for nonrecurring income, our underlying profit of $746 million rose 18% and is the highest recorded in our history. As a reminder, our underlying earnings have grown 46% over the past five years, with headline earnings ahead by 54% over the same time frame.

In recognition of the strength of both our balance sheet and our cash flow, our Board has recommended a final dividend of $0.3061 per share, payable to shareholders of record on 10th of June 2026. This represents an enhanced dividend policy of paying up to 40% of reported net profit after tax and enables us to increase shareholder returns whilst maintaining both ample cash flow and balance sheet capacity to support our long-term growth targets.

Our total revenues and other income rose 2% to $2.6 billion in 2025. As at 31 December, we had total assets of $26.3 billion and net assets per share of $9.86. For the first time in five years, we achieved our investment growth targets. On this call last year, we guided CapEx expectations for 2025 to around $4 billion and reiterated this in August. Our actual 2025 CapEx was $4.2 billion, as we funded aircraft orders, deliveries and pre-delivery payments as the supply of new aircraft from the main manufacturers generally improved.

Boeing and Airbus delivered close to 1,400 aircraft, up 25% on the prior year as the value of global aircraft deliveries increased 28% to $100 billion, the first time this level has been achieved since 2018. For the first two months of 2026, the number of deliveries from these manufacturers has tracked last year, and we anticipate a total of 16% growth in delivered aircraft value in 2026. Looking further out, based on manufacturer delivery timetables and prevailing market prices, we expect the value of new aircraft deliveries and hence, our addressable market to rise by close to 80% between 2025 and 2030, which supports our long-term growth targets.

We've continued to add to our delivery pipeline following our largest ever order placed in March last year, ending the year with purchase commitments for an additional 160 aircraft scheduled for delivery between 2025 and 2032 and a total order book of 337 aircraft. The $19 billion in committed capital expenditure that this pipeline represents provides a clear path towards achieving our targeted $40 billion of assets by 2030.

Global passenger traffic continues to rise as 2026 opened, up almost 4% in January, albeit tempered by the changed timing for the Lunar New Year holiday that restrained growth in Asian markets. Recent developments in the Middle East could see passenger growth challenged in 2026, with IATA's 4.9% estimate for the year potentially under pressure as closure of airspace and airports in the region affects both passenger and freight volumes.

We're also monitoring the impact that higher jet fuel prices are having on our airline customers' cash flows. IATA's $41 billion global profit forecast for 2026 is based on an average price per barrel for jet fuel of $88. Airlines are reporting limited effects so far, either due to hedging already in place or an ability to push through increased fares. But last year, jet fuel expense represented about 26% of the IATA members' cost base, ranking just below labor.

We've been actively ensuring our access to significant liquidity since the beginning of the year. We extended our $3.5 billion revolving credit facility with our major shareholder, Bank of China out to February 2031 and raised an additional $2.5 billion in the loan and bond markets, leaving us with over $8 billion in committed liquidity at present. This certain access to funding, collections that continue to exceed 100% and our sustained strong cash flow generation will position us well to capitalize on any of our airline customers' additional financing requirements in the coming months. Meanwhile, we are focused on delivering the 42 aircraft that we currently have scheduled for this year as well as adding to this number through targeted purchase and leaseback financings.

I'll now hand over the call to Tom to speak to our operations and business development, and then Wen Lan will present a more detailed review of our P&L and balance sheet.

Thank you, Stephen. Our operational and business development report is as follows: we delivered 51 aircraft and two engines to 14 different airline customers during 2025, of which 44 aircraft were operating lease and seven were finance lease. We also signed lease commitments for 74 aircraft. As of the end of December, our total portfolio stood at 815 aircraft and engines, comprising 451 owned aircraft, 11 owned engines, 16 managed aircraft and an order book of 337 aircraft, representing a record committed capital expenditure of over $19 billion. The additions to our portfolio this year continue to all be fuel-efficient latest technology aircraft, including 20 A320neo family, 23 737-8, 7 787-9 aircraft and our first A350-1000.

Manufacturer delivery delays have largely stabilized, and as a result, aircraft delivered broadly as expected. In fact, we've seen some deliveries brought forward from the delivery months previously advised during 2025. Our industry remains capacity constrained and still faces the effects of lower-than-planned aircraft deliveries for the last five years, creating a cumulative effect for the shortage of supply versus demand that isn't expected to be resolved until the end of the decade. Airbus and Boeing are both planning to increase production over the next few years, which will increase pressure on the supply chain, and we will be monitoring carefully the signs of any further delays.

For 2025, we only transitioned three used aircraft to airline customers. The low number of transitions is due to the high demand for lease extensions, including 21 leases that were previously scheduled to expire during this period as well as an absence of repossessions. We continued through 2025 as we ended 2024 with 100% of our aircraft and engines on lease, the only major lessor to achieve this metric.

The weighted average age of our owned portfolio was five years at the end of December and continues to be one of the youngest in the aircraft leasing industry. We have amongst the highest proportion of latest technology, most fuel-efficient aircraft in our fleet of any operating lessor, 84% at year-end. We also continue to have one of the industry's longest weighted average remaining lease terms for our owned portfolio at 7.8 years. The aggregate appraised value of our operating lease fleet, which excludes the value of committed lease revenue, also continues to rise and represented an 18% premium of $3.4 billion to that fleet's net book value.

We sold 35 aircraft from the owned fleet in 2025, an increase from 2024's 29 aircraft sales as we capitalized on the prevailing strong demand for used aircraft. These aircraft had an average age of 9.3 years, similar on average to those sold during the prior year and more than four years older than the average fleet age. Despite focusing on lower-yielding leases and older aircraft with shorter remaining lease terms, the level of demand for used aircraft drove gain on sale margins higher, especially in the second half, ending at 15% for the year, comfortably ahead of our long-term 9% average.

In second half 2025, we maintained the gains in our yield metrics that we reported in the first half. Lease rate factor rose 30 basis points compared to 2024 to 10.3%, which was in line with the first half 2025. This despite the delivery of more larger aircraft at the end of the year. The backloaded nature of these deliveries grew the net book value of the fleet, but only contributed a limited amount of income for the period with the full year effect being seen in 2026. Net lease yield likewise rose 30 basis points to 7.5% as our funding costs remained stable.

We have continued to increase the efficiency of our operations with the ongoing digitalization of our business through the implementation of state-of-the-art IT systems, combined with training our staff to adapt to more digital ways of working. This digitalization activity will continue through 2026 as we add an increased focus on data analytics to help inform our asset management activities and decision-making. This will help us to enhance both our efficiency and agility as we continue to grow our business towards our targeted $40 billion of assets by 2030.

Turning to ESG. We have a highly diverse employee base. Our 211 colleagues at the end of 2025 featured 20 nationalities. At the end of last year, half of our employees were women with 29% in management positions, a 9 percentage point increase from 2024. We have two Board members that are female, exceeding the Hong Kong Stock Exchange's current minimum gender requirement. We continue our focus on strong governance and compliance with further enhancements in both areas.

With respect to sustainability, we have engaged with industry bodies to promote the use of sustainable aviation fuel as part of the aviation industry's transition towards net zero as well as procuring SAF certificates for the first time as part of our decarbonization program.

We lifted our engagement with our local communities in 2025 with over 180 employees or close to 90% of our total workforce, participating in a total of 16 CSR events. Globally, we've taken part in and originated events that impact positively across a wide spectrum of age and need. Examples include support of a Parkinson's disease foundation in New York, assisting elderly with grocery shopping in Singapore and helping at a special needs school in Dublin. That concludes the overview of our operations and business development for the year ended December 2025.

And I'll now turn it to Wen Lan for a deeper review of our financial performance.

Thank you, Tom. As Stephen mentioned earlier, we reported a net profit after tax of $787 million for 2025, equivalent to earnings of $1.13 per share. Total revenue rose 2% to $2.6 billion compared with 2024, increasing for all core business activities with significant growth in contributions from our financing activities and from gains on aircraft sales. This reflects the scheduled growth in near-term aircraft deliveries and higher underlying aircraft valuations, respectively.

Operating lease rental income increased to $1.9 billion, reflecting an improvement in lease rate factor to 10.3%. Finance lease revenue again contributed strongly, up 25% to $271 million as finance lease receivables amounted to over $4.1 billion and transactions completed earlier in the year lifted revenues.

Net gains on aircraft sales rose by 81% to $213 million compared with 2024 as we sold 35 aircraft compared with 29 the prior year and as robust demand for used aircraft lifted our sales margin.

Other interest and fee income was ahead by 77% to $136 million in 2025, driven primarily by our focus on assisting our customers with predelivery payment financing. Other income of $110 million fell 63% compared with 2024, mainly due to the substantially lower Russia-related insurance settlement proceeds. Looking at our cost base, our two largest expenses continue to account for 90% of the total. Depreciation, our largest expense was steady at $782 million as we continue to sell operating leased aircraft from the owned fleet and their replacements delivered towards the end of the period.

Finance expenses, our second largest item, rose 4% to $738 million, while our cost of debt was unchanged compared with 2024 at 4.5% per annum. Our gross debt increased by around 3% to $17.2 billion. Use of internally generated cash flow and lower interest rates for our floating rate loans accounted for the stable funding cost.

There was no impairment of aircraft values in 2025 with all aircraft on lease and underlying market values generally firming. Elsewhere, our effective tax rate rose to 15.9% in 2025, reflecting the imposition of minimum corporate tax rules in most of the jurisdictions where we are based. This was up from last year's 11.1%, where the REIT benefited from the write-back of impairment losses.

Moving to the balance sheet. We ended 2025 with total assets of $26.3 billion, funded by total debt of $17.2 billion. Total equity rose $478 million to $6.8 billion as at 31st December. This was mainly attributable to retained profit for the period, which was partially offset by $288 million in dividend payments. We reached $4.3 billion in new financing, comprising $1 billion from the debt capital markets with a further $3.3 billion from facilities with our banking group of over 50 banks. This, combined with record operating cash flow net of interest of $2.2 billion saw us fund our $4.2 billion of CapEx and repaid $ 3.1 billion in maturing bonds and loans.

Our total debt was little changed from the end of last year, and our gross debt-to-equity ratio was also stable at 2.5x as retained earnings continue to rise. Rating agency, S&P our outlook to stable and both S&P and Fitch reconfirmed our A- credit rating during 2025. In 2026, $1.9 billion in notes and loans are scheduled to mature, and we have already repaid $900 million of this. With our robust cash flow and committed liquidity, we are confident that we can fund our target CapEx and any remaining debt obligations.

I'll now hand the call back to Steven for his closing remarks.

Thanks, Lan. We're extremely pleased with our achievements in 2025, where we generated growth across all of our business areas and in our asset base to produce the best underlying earnings in our history. This would not have been possible without the efforts of our staff and our Board as well as the support from our investors and business partners to whom we extend our thanks.

Not only have earnings risen, but so too has the value of our aircraft assets. The gap between the market value of our aircraft and their book values increased to $3.4 billion, which represents a premium of almost HKD 38 per share. Today, demand for new aircraft remains strong, both for traffic growth as well as the replacement requirement for a global fleet that has aged rapidly in recent years. Manufacturers continue to increase production levels, which drives a significant lift in airline funding needs. With an industry-leading order book and today around $8 billion in available liquidity, we are ideally positioned to capitalize on both of these trends.

With that, I conclude our review of the industry, our company's financials and our outlook, and I'll pass the call back to Tim.

'

Thanks, Steve. This wraps up management's formal commentary. We now have time for Q&A and out of fairness to others request that each participant restricts themselves to one question and a follow up, unless time permits for additional queries. I'll hand the call back now to the operator to start the Q&A session.

[Operator Instructions] Our first question, Mr. Perry Yeung from UBS.

I just have one question related to the situation in Middle East. Now we've seen the jet fuel price being going so high, and that obviously will weigh on the profitability of the airlines. I'm just curious from a management perspective, if you have any color in terms of the credit risk that we are -- and where we are in terms of the airline customers that we are having and also the exposure in terms of the Middle East, both from the delivery perspective and also the existing lease.

Perry, it's Steven. I guess, firstly, to answer your question in terms of our exposure to the region, we've got 25 aircraft with six different airlines. It's about 8.7% of our fleet in the region, all with strong airlines who are all currently up to date on their lease payments. And also importantly, all of our aircraft are still fully insured.

In terms of fuel price, clearly, it has gone up. Airlines broadly haven't seen the effect of that yet because in most parts of the world, the price that they pay is based on the average of the previous month. And so it would only be if it stays at current levels for the rest of this month that it will really start to hit their cash flows from April onwards. So we haven't seen the full effect of this yet.

Clearly, the effect will be determined by how long this spike lasts. And at the moment, we don't know as much as I don't think you know either. And so we have to work with our customers. Fortunately, we're heading into this with airlines on the back of a lot of liquidity from their side, and we will work with them to support them. And it will create opportunity as well, as you've seen when you've been with us through other volatile periods, our ability to deploy some of that liquidity quickly to support our customers has been ways that we've grown our balance sheet substantially during these volatile periods. What's always important as you go through this is that you have your airlines leased to a diverse group of airlines with strong credits. And I think we have one of the better ones in the industry.

Our next question, Mr. Douglas Runte from Deutsche Bank.

Thanks for the early morning wake-up call, still dark here in New York. A question on engine costs, maybe a broad one. There was a lot of discussion at ISTAT America about the relentless rise in both overhaul costs, LLPs and the length of time required to do overhauls and a survey at a large number of people said that rising maintenance costs for engines were a material risk for lessors. I'm wondering how do you look at high single-digit, low double-digit rises or increases in engine maintenance costs? Is it something that we should expect for the foreseeable future? Is it a risk and opportunity? How are you preparing for it?

Yes. So I'll answer that one, Doug, it's Tom Chandler. So there are obviously two key aspects of the overhaul costs. One is the actual cost of the shop visit and the other is the time between shop visits and the utilization the airline can get from the engine. And one of the things that we've seen in the early years of both the new aircraft programs is the durability of the engines wasn't what was expected, and therefore, the time between the shop visits has been lower, which has been driving up the effective cost per hour.

Now both CFM and Pratt & Whitney are putting more durable builds into the engines now that we'll be delivering over the next 12, 24 months coming through into the system. And so that helps address the durability point. So there obviously have been some supply chain pressures coming out of the COVID period, which has seen input costs increase for both manufacturers, and that's been certainly one of the factors that's been leading to those price increases. As the supply chain stabilizes and as the effects of that moderate, we would also expect to see over time, those price increases on LLPs and on the overall moderate as well.

Great. I guess, so I'm thinking financially, where you have EOL payers should I be assuming that EOL effectively an unsecured exposure to an airline counterparty is effectively going to grow by 8% to 10% a year. It seems to be an increasingly large lump versus what we as an industry might have assumed 5 or 10 years ago with reliable CFM56s.

Doug, it's Steven. Doug, it's Steven. I think when you look at this, yes, those payments will get bigger. That is just the nature of the period of higher inflation that we've had and some of those cost increases that Tom just talked about. So for airlines, it's an increased incentive for them to extend leases rather than return aircraft, and that's what we've already been seeing in the numbers that Tom talked about earlier. It also means that as an industry for leasing companies, we need to be more careful as to which airlines you give that end-of-lease payment option to versus collecting cash maintenance reserves along the way because we're going to be looking at these bigger numbers in future.

Thanks for the robust disclosure on the call.

Our next question, Mr. Jason Sum from DBS Bank. Can you hear me?

Congratulations on your results. I just have one or two questions. So I just have a follow-up question on the Middle East. I wanted to get a sense if -- right now, the situation still seems to be stable from your end, but I wanted to see if you have any -- provide any color if you expect airlines affected by the Middle East conflict to defer or potentially postpone scheduled aircraft deliveries given that your financials could be hit by the crisis? And if so, what would your plans be with regards to redeploying those assets or those aircraft, yes?

Okay. Thanks, Jason. I think the straightforward answer to that is that it's still way too early to be able to call that. We have not yet had any delivery issues. We've delivered aircraft on schedule. We've not had any notice from any airlines that they wish to defer deliveries. But again, as I said in my response to one of the earlier questions, that will clearly depend on how long this runs for. And at this stage, I don't think any of us have an answer to that.

Okay. Yes, sure. Understood. Just one quick follow-up question on the kind of M&A activity that we've been seeing in the leasing sector. So yes, we've definitely been seeing an uptick in M&A activity across the sector recently. So I wanted to see -- I was hoping if you could provide some color if how do you view the prospect of greater concentration among the largest lessors? And what do you think that could mean in terms of competition and returns across the industry?

I think as we said before, we see this as a continued pattern of consolidation across the industry. I think as a global industry, we're still actually very fragmented. And so it's a logical part of the process as the industry matures that we see further consolidation. We've just seen that Dubai Aerospace is going to acquire the leasing business of Macquarie. And I think there will be the others as we move forward. And so we will look at that as we always have done. And if we see the right opportunities, then we will consider it carefully. But as you know, to date, our growth has been entirely organic, and we've managed to achieve the growth and the targets that we've set ourselves.

Our next question, Mr. Parash Jain from HSBC.

Steve, I have one question in two parts. So thank you for raising the dividend payout. But can you help us like how to think about the trajectory given your gross debt to equity was around 2.5x. With respect to your CapEx target of 2026, like what we have seen during COVID, do you think that -- and who knows when the -- how long the crisis will last, but it will create a purchase and leaseback opportunity? And in that case, how high can you go at your current leverage level? And otherwise, going forward, how should we think about what could be the potential dividend payout if you deliver as per your plan?

Okay. Thanks, Parash. I'll try and unpack all of that. The -- so yes, we're increasing our dividend, and we're moving our policy up from one that was previously up to 35% of net profit after tax to one that's now up to 40% of net profit after tax. Clearly, dividend policy is not just driven by the short term. Dividend policy is something that you do for the longer term. And so first of all, fundamentally, we are very comfortable that, that's a level that we're happy with and able to achieve that growth target that we've talked about in the longer term of going to $40 billion by the end of 2030.

What we also, I think, have built into this is the flexibility that if opportunities arise from what we're seeing right now, we can accelerate that growth, and we can do more of it at the nearer end. And we're comfortable that this increase in dividend doesn't restrict us from doing that in any fashion. If you look at, as you say, our current debt-to-equity level of 2.5x, we very comfortably in the past, run at 3.5x. So that's a full turn of equity before we would need to concern ourselves about that within a very short period of time. So we have plenty of firepower, both in the balance sheet capacity and in our liquidity to take advantage of any near-term opportunities.

And I mean I think the question is more on the other side that do you think that 2.5x is more than comfortable? And do you want to lever it up.

As I think you and I have discussed many times before, Parash, I would be perfectly comfortable running at a higher level of debt to equity than we are currently. The -- historically, we've run more like 3.5x. And so taking it back up to that level, we are fully comfortable with doing that.

Our next question, Mr. Jason Sun from DBS Bank.

Sorry, I just have a few more -- two more follow-up questions. Could you give us a sense -- sorry, give us an update as to what percentage of your lease portfolio is still on leases signed during COVID? And how should we -- what's the expiry profile of those leases over the next few years?

So I think, Jason, it's about 10% that's still remaining. The -- and that is -- and it evolves in a few different ways. So firstly, we've got it down to that level, not just because leases have expired, but because also we've been selling planes with the leases attached. And so a number of the aircraft that we sold last year, particularly in the first half were some of those low-yielding leases.

What we're also seeing, as we talked about earlier, is this increased prevalence of airlines extending leases. And when those leases are coming to expire where we are also being successful is we're keeping the aircraft on lease with the same airline, but increasing the lease rate as well. And so it's a gradual process, which doesn't need to wait for all the leases to expire for us to be able to turn over that remaining 10%.

Yes. Understood. And just one quick follow-up question. I wanted to get a sense if you could help provide what are the drivers behind the very strong margins on aircraft sales in the second half of 2025? And how sustainable are these margins from here on?

I think there's always two fundamental things behind that. I mean, firstly, if you look at the aircraft valuations, as we talked about in our own fleet, we have that $3.4 billion of, if you like, hidden value where the value of our aircraft is much higher than the book value that's shown. And so that feeds through into the broader market.

The second element is always the liquidity available to buyers. And whilst ever debt markets are very liquid, then that enables them to fund their acquisitions very cost effectively. And the third element has been that simple supply and demand for aircraft. Whilst there is that ongoing shortage and people see the excess of demand oversupply running through to the end of the decade, then it does mean that aircraft assets are very attractive to those buyers.

Our next question, Mr. Douglas Runte from Deutsche Bank.

I'm wondering if you can talk a little bit in more detail about your financing plans in 2026 and what options you might consider and in what quantity? You obviously have quite a few arrows in your quiver. What seems most attractive now? And in particular, is aircraft ABS a possibility for portfolio sales given the reopening of that market dramatically?

So I think if we break down into the different elements of that, Doug, in terms of remaining debt maturities this year, it's about $900 million, I think, remaining that we've got to refinance throughout the rest of the year. So not a huge amount. Obviously, we continue to generate strong cash flow. And so it's really then what we need to fund the CapEx as it comes through. As you've seen already this year, we've raised $2.5 billion, of which $500 million of that was a 7-year bond that we did right at the beginning of the year. And then more recently, we closed $2 billion of bank facilities. So we have a lot of liquidity available, which will see us through, I think, a lot of the near term. But if we find those additional CapEx opportunities, then we will raise more financing. And at the time, we'll look at is the bond market more constructive or is the loan market more constructive. I think what we've seen in the last couple of months, as you see from the volumes that we've done was that the loan market was slightly more constructive.

In terms of ABS, the ABS market for us, I know that you know, Doug, but maybe for some of the others on the call, the ABS market is not a source of funding for us. So the ABS market for us would be to replace cheaper unsecured funding with more expensive secured funding. And so the only time we use the ABS market is when as part of that transaction, we can sell the eNote or the equity in the capital stack as well. And so it becomes a portfolio sale. It's something that we're always looking at. It's a market that we've tapped before in 2015 and 2019. The -- I don't think anybody has yet fully reopened that eNote market. But if we feel there's an opportunity, then clearly, we will look to go back to that market because it's been a very strong market for us in the past.

Great. And then your insurance comments were, I guess, both surprising and very pleasing. I guess it's surprising that after Russia, the primary insurers hadn't lit the fuse and exercise notice periods on a war exclusion. I guess is the insurance that you referenced the original insurance, both primary and contingent or is someone else stepping in?

No. It's -- and I think in this respect, aviation has been treated differently to shipping. And so whilst we've maybe seen some notice periods shortened, there's been no removal of insurance or lifting of insurance, and it's still the primary provider that is in place.

Great. Operator, thank you very much. I think we can see all the calls come in at this point, all the questions come in. So at this point, we'll close off discussion for today. We'd like to thank everybody for joining. We welcome any further questions. So please don't hesitate to contact either myself or Kelly by phone or by e-mail, and we look forward to speaking to you in the near future. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.