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John Plueger

Well, thanks, Jason. Hello, and good afternoon, everyone. Thank you for joining our call today.
During the fourth quarter, Air Lease generated revenues of $713 million and $0.83 in diluted earnings per share. Our results benefited from the continued expansion of our fleet, offset by lower end-of-lease revenue as compared to the prior year. I'm also happy to report that full-year 2024 revenue and ending fleet net book value reached record levels in the history of our company.
We purchased 18 new aircraft from our order book during the quarter, adding $1.3 billion in flight equipment to our balance sheet, and we sold 14 aircraft for approximately $540 million in sales proceeds. The weighted average age of our fleet was stable quarter over quarter at 4.6 years, while weighted average lease term remaining extended slightly to 7.2 years. Fleet utilization remains very robust at 100%.
Our fourth-quarter deliveries came in better than expected as the OEMs pushed to achieve their own delivery goals and objectives ahead of year end. On a full-year basis, the $5 billion in deliveries we received hit the midpoint of the $4.5 billion to $5.5 billion dollar range we outlined to you at the beginning of last year.
For 2025, we expect to receive $3 billion to $3.5 billion of new aircraft delivered from our order book, with around $800 million anticipated to deliver in the first quarter of '25. I would also note that approximately 80% of our deliveries expected for 2025 are Boeing aircraft, so any additional challenges emerging in Boeing's production efforts could be impactful.
With the lower forecast expenditures on new aircraft deliveries for 2025 compared to 2024, ALC will have the ability to largely self-fund those deliveries from operating cash flow plus aircraft sales. This means reduced funding needs from the debt capital markets.
In effect, for 2025, we anticipate debt funding of approximately $2 billion including refinancing of remaining 2025 debt maturities. So we will have less overall financing in 2025 where it appears the financing rates will remain elevated. Greg will discuss this further. And we believe, by the way, that the same situation will exist for 2026.
Expected deliveries from our forward order book are fully placed through 2026, and the team is working diligently to achieve the highest possible lease rates on our remaining deliveries in 2027 and beyond. Our young fleet and sizable new order book with delivery positions well inside of any available fleet manufacturers continues to position us exceptionally well in the current commercial aircraft supply constrained environment.
This strong environment is also continuing to drive up lease rates. So to that point, I'd like to share some specific information that I hope you find useful as we as we report here on our full-year 2024. Now I won't be updating the specific comments or examples every quarter, but simply wanted to give you a flavor of what we are seeing in the overall context.
First, during Q4, ALC executed lease extensions covering 23 single aisle aircraft including Boeing 737-800, Boeing 737-8 MAX, A321ceos, and 1one E190. In aggregate, that pool of aircraft extensions resulted in higher lease rates and lease rate factors than those just prior to extension. This is very significant in that lease rates normally are lower during a lease extension compared to when the aircraft delivered new.
Second, year to date in 2025, ALC has agreed to lease extensions on six Boeing 777-300 aircraft across two airlines. The aggregate total lease rates and lease rate factors were largely in line with what they were prior to the extension, and I would add also significantly higher than the lease rates indicated currently for those aircraft by well-known appraisal firms.
This points to the growing strength of wide-bodied aircraft, which historically have always lagged narrow body aircraft. In fact, we believe that wide body demand has surged faster than narrow body demand over the past six months. Steve will comment on this further in his remarks.
Third, our Q4 new aircraft deliveries represented the highest delivery yield in a quarter in over four years. Fourth, as you recall, during COVID, we had a number of leases that were restructured or signed at relatively low lease rate factors as a product of the challenges facing our customers at that point in time.
Approximately $5 billion net book value of these lower yielding leases will mature by the end of 2026. As these leases mature and expire through 2026, we continue to be optimistic about lease rate extensions at significantly higher lease rates or releasing to the next lessee at significantly higher lease rates as we are seeing today.
Now at the same time, we must recognize we are in an environment where interest rates have not fallen as rapidly as most of most of us expected a year ago. In fact, looking forward, it appears that interest rates will remain elevated for a longer period of time than we anticipated. Looking back over the past 24 months, it can still be said that overall interest rates rose more than lease rates from the historic lows.
Let me also remind you that we undertook a program several years ago to reduce our China content, and we have done so very effectively. That continued in 2024, wherein almost half of our aircraft sales were aircraft on lease to China. We made healthy gains on those sales, yet I want to remind you that those China leases were very profitable, in fact, some of our highest yielding leases. So this also affects our margins looking forward.
With these factors, it is taking and will take a bit longer for increased lease margins being seen in our financial results. Nevertheless, we expect to see a modest moderately sized steady upward trajectory in fleet lease yields each year for the next three to four years based on our views of the market and assumptions around our sales activity and the interest rate environment over the same period.
At the same time, we are reaping the benefits of higher aircraft values and our aircraft sales. Strong commercial aircraft demand continues to support our sales efforts and gain on sale margins. Our gain on sale margins for fourth-quarter '24 and full-year '24 were very robust, reflecting this environment.
Our sales pipeline remains solid at $1.1 billion, a consistently healthy gain gain on sale margins. We envision an overall sales outlook of about $1.5 billion for 2025, around $400 million of which is expected to close in the first quarter.
Given this overall backdrop, let me discuss capital allocation. For 2025, it's going to be quite simple. We've told you that besides funding our order book, our top priority is to get back to our target debt to equity ratio of 2.5 to 1. We expect to be there by the end of 2025, perhaps even earlier.
So in 2025, we are focused first on debt reduction. Once we hit our target debt equity level, we will, as always, consider all capital allocation avenues, including incremental aircraft or fleet purchases, capital return to shareholders, M&A possibilities, whichever we deem the best deployment of capital for our shareholders.
Let me conclude a bit off topic, but importantly to comment on the tragic fires that devastated Los Angeles, our hometown, recently. You all read and saw firsthand the unprecedented devastation in our city. Despite a number of our employees being evacuated, I am incredibly thankful above all that none of our employees suffered the loss of their homes or any other tragedies.
During this period of crisis, I am proud that the ALC team maintained normal business operations during this time without skipping a beat. At the same time, we are all profoundly saddened by the loss of life and property of others less fortunate. Many of our employees spent time helping others in need.
And while we offer financial assistance to all employees for any fire-related housing or other costs, most declined, wishing instead that ALC make a meaningful contribution to those who saved our homes and our lives. As such, I'm pleased to advise that ALC is donating $0.5 million to LA City and County fire departments with our profound gratitude and heartfelt thanks.
So let me now turn the call over to Steve Házy to offer some additional commentary, Steve?

Steven Udvar-Hazy

Thank you, John. I just like to underscore John's comments, and my thanks to our team for their dedication to our company and our colleagues in the LA fires. I'm very proud of the way our team responded in offering help and assistance to each other, as well as family, friends, and neighbors in their communities to overcome the tragic destruction witnessed in Los Angeles during January.
We are very pleased to report record revenues and fleet size during 2024 and view Air Lease as very well positioned for the current environment as we move forward in 2025 and beyond. Demand for commercial jet aircraft is extremely high. And our own fleet and large order book consists of some of the most attractive commercial aircraft types on the market.
There's rarely an airline customer meeting that goes by way of not having asked to find more aircraft for them. And nearly all of our leases maturing are being extended at very strong profitable lease rates. The phenomenon of lease extension rates exceeding initial new aircraft lease rates is truly exceptional.
Second leases are typically signed with a step down in the lease rate, given the depreciation of the aircraft over time. So it's a pretty remarkable environment where lease rates are actually stepping up on a second lease to such high levels.
As John noted, I do also point out that the drag of the lower yield of the restructured leases that we did during the pandemic and early deliveries in the pandemic season should begin to weigh less heavily on our overall fleet yield as the lower lease rate terms end, and they extended at market rates with the existing airline or with a new airline.
Demand for our new commercial aircraft is being further supported by exceptionally strong passenger traffic volumes. According to recent data released by IATA, total passenger traffic volumes rose by more than 10% during 2024 versus 2023, reaching all-time record levels. International volumes were the strongest segment on the market, rising an amazing 14% year over year. And practically all markets growing in double digit or near very strong double digit rates.
Asia Pacific remains the leading international market globally, rising 25% during the year. While this dramatic pace of growth is likely to slow somewhat in the years ahead, as growth rates normalized, we continue to see this region as being a significant source of expansion worldwide.
Latin America, Middle East, Africa, and Europe were growth leaders in the international segment last year. Domestic volumes, meanwhile, delivered a solid 6% rate of growth in the last year, which is more or less in line with the longer term industry averages of approximately 2 times the pace of GP growth on a global level.
Passenger load factors also continue to rise. Reaching approximately an average of 84% for the full year of 2024. These are exceptionally robust levels, breaking records in a number of regions and markets. Asia Pacific region low factors, for example, achieved their record all-time high in 2024. 15 to 20 years ago, developing markets and international factors were exciting if they moved into the high 70s range, while now some are approaching in some cases even exceeding 90% load factor levels.
High demand and low supply of commercial aircraft is certainly a component driving load factors to achieve these record levels. As a reminder, Air Lease clearly benefits from strong passenger traffic volume expansion, though we are not dependent on it, as we focus on replacing aging airline fleets with new technology, fuel efficient aircraft, and economically profitable leases (technical difficulty) increasingly apparent.
This combination of accelerating wide-bodied demand, relatively modest production rates, and continued aging of the in-place operational wide-body jets is developing into what we expect to be a protracted shortfall of good widebody aircraft over multiple years to come. John mentioned on the call the extension of sic of our 777-300ER aircrafts to date in 2025. We're also seeing the strengthening demand supporting similar dynamics to our other wide bodies, including our A330s coming up for lease exploration.
This backdrop of strong demand and limited production is appearing to repeat the same path and characteristics as witnessed in the narrow body market already, which should definitely support strength in the value of our wide-bodied fleet. It's very difficult to foresee a significant ramping up of OEM production rates that could address this expected shortfall, especially with the ongoing delays in the 777X program.
Wrapping up my comments, I'm very excited about Air Lease's prospects for 2025 and beyond. We look forward to enjoying the higher lease rates on our new aircraft from our very sizable order book, along with robust lease rates on new extensions as a further normalization of the yield curve over time, which combined should be highly beneficial to our operating performance ahead.
I will also remind you of the deep underlying value of our own fleet, which is carried at historical depreciated cost, as well as our audible positions, which are for slots well inside of any available aircraft from the OEMs and at prices that could not be duplicated at present. A significant part of the order book that we have today that is still yet to deliver were contracts that we negotiated in 2021.
Our order book has significant value and none of that is carried or reflected on our balance sheet at this time. I would like to now turn over the call to our CFO, Greg Willis, for his comments on our financial situation.

Gregory Willis

Thank you, Steve, and good afternoon everyone. During the fourth quarter, Air Lease generated total revenues of $713 million which was comprised of approximately $639 million of rental revenue and $74 million of aircraft sales, trading, and other activities.
Rental revenue was in line with the fourth quarter of '23, and lease yields remained essentially flat. Rental revenues have benefited from the growth of our fleet, offset by significantly lower end-of-lease revenue. As a reminder, we recognize $60 million in end of least revenue in the prior period, which as compared to the current period was $6 million.
As we have messaged before, we continue to anticipate lower levels of end-of-lease revenue due to higher extension rates attributable to the supply shortage of commercial aircraft. As John discussed earlier, this environment has led to higher lease rates on extensions and has served to increase the value of these aircraft in our fleet.
Sales proceeds for the quarter are approximated $540 million from the sale of 14 aircraft. These sales generated $65 million in gains, representing roughly a 14% gain on sale margin. We continue to expect to see healthy margins towards the upper end of our historical range of 8% to 10% based on our current sales pipeline of $1.1 billion. These gains continue to reflect the significant value embedded in our fleet which we carry on the balance sheet at depreciated cost.
Moving on to expenses, interest expense rose by approximately $38 million year over year, driven by a 37 basis point increase in our composite cost of funds to 4.14% at year end. Increased financing costs and higher debt balances were the primary contributors to the year-over-year increase in interest expense. However, as compared to the third quarter of '24, our composite rate declined slightly as we benefited from the Fed rate cuts in '24.
At year end, roughly 79% of our borrowings were at fixed rate versus floating just inside our 80% target. We continue to benefit from our largely fixed rate borrowings which have meaningfully moderated the impact of the current interest rate environment.
Depreciation expense continues to track the growth of our fleet. SG&A expense declined relative to the prior year while also declining as a percentage of revenue relative to the prior year's quarter. It's also worth noting that we did benefit from a $67 million Russia insurance recovery in the fourth quarter of '23.
Moving on to our financing activities for the quarter, in mid-October, we redeemed our outstanding $250 million Series A preferred stock, utilizing the proceeds from the lower cost $300 million dollar Series D preferred stock that we issued in the third quarter.
During the fourth quarter, we raised approximately $1.3 billion in debt financing. This was comprised primarily of a $1 billion dollar, three-year syndicated unsecured bank term loan priced at one month SOFR plus 1.125%. This capital was primarily sourced from the new Asian banks helping us to grow our bank group to a global base of 83 financial institutions.
Additionally, I'd like to highlight that we have launched a $2 billion commercial paper program in late January of this year. We believe our commercial paper program should serve to reduce our borrowing costs, as CP rates at present are approximately 80 basis points lower than the rate on our revolving credit facility. The CP program also represents another funding channel to further diversify our access to capital.
Our debt to equity ratio at the end of the fourth quarter was 2.68 times on a GAAP basis, which net of cash on the balance sheet is approximately 2.6 times, relatively flat quarter of a quarter when adjusted for the impact of the timing difference of the preferred stock issuance and redemption last year. And with our lower CapEx outlook for the next few years, we anticipate reaching our leverage target by the end of the year, which should increase our financial flexibility.
Our strong liquidity position of $8.1 billion as of quarter end, $30 billion of unencumbered asset base, and $30 billion of contracted rentals remain key pillars of the strength of our business. As John and Steve outlined, we expect our portfolio lease yields to steadily increase at a moderate pace over the next several years.
This is driven by an increase in yields on our attractively placed order book aircraft delivering over the next several years, higher than anticipated lease extension rates, given the strong market dynamics that we see persisting through the next several years, the continued seizing of our existing fleet, and the roll off of our COVID era leases. However, turning to margins, we still expect to experience some headwinds given the current elevated interest rate environment which look to keep our adjusted margins in '25 generally around the levels we recorded in '24.
With that, I'd like to turn the call back over to Jason for the question and answer session of the call.

Jason Arnold

Thanks very much, Greg. This concludes our prepared commentary and remarks for the question and answer session. We ask each participant to limit their time to one question and one follow up. Krista, please open the line for the Q&A session.

Question and Answer Session

Operator

(Operator Instructions) Katherine O'Brien, Goldman Sachs.

Katherine O'Brien

Hey, good afternoon everyone, thanks so much for the time. So I think your comments on some of the puts and takes around lease margins and ROE, China's a bit of a headwind this year, some of the lease renewals are going to be a tailwind over the coming years, obviously it's a bit of a slow moving chip, as you turn through the portfolio. But can you just walk us through, what do you think gets you back to mid-teen adjusted pre-tax ROEs that you saw before the pandemic? Or do you think that's achievable and just any rough sense of the timeline would be great?

John Plueger

Sure, thanks, Katie. I'll take that, and then I'll ask Greg to comment. I think, yes, I do think we are going to be able to achieve that mid-teens level that you spoke about, but it's going to take two to three more years. We've outlined the factors on the positive side and any headwinds, but given all that in consideration, I do believe that that's a reasonable time frame outlook in the two to three year timeframe.

Gregory Willis

Yeah, and I think obviously the big question is around the timing of interest rates and lease rates as well. I mean, but at the end of the day we obviously when it comes to capital location too those are other factors that we have. But I don't see any impediment of reaching our ROE target over a longer period of time is just a question of how lease rates and interest rates evolve.

Katherine O'Brien

Got it. Makes sense. And then I'm assuming your comment on reaching your leverage target is based on just clear business trend, but correct me if I'm wrong. Based on what you see in the market right now between incremental aircraft M&A or the value of our shares as you were to get back to your target debt to equity faster than you currently expect, what will be there right choice for ALC shareholders?

John Plueger

We'll make that determination at the -

Steven Udvar-Hazy

But they're all on top of our list of ideal capital allocation is there any important with a view toward maximizing the value to our shareholders. And once we get to the 2.5 area, which will hopefully happen sometime in the second half of this year, our Board will consider multiple scenarios, including all initiating a buyback program.

John Plueger

And one other opinions that caveat I mean, it should be obvious, but also when you're looking at capital return to shareholders are our current our stock price has a major bearing on that. And so we never predict where that will be. But obviously, as you know, that's a key consideration, additional color, accounting.

Operator

Terry Ma, Barclays.

Terry Ma

Thank you. Good afternoon. So I appreciate the comments on the direction of the overall fleet lease yield over the next few years. When you kind of factor in the forward curve and your planned funding, the should we expect the net spread margin to go up a similar amount? Or is that going to be kind of depressed by just overall funding for interest rates?

John Plueger

Greg?

Gregory Willis

I think for '25, we thought that we'd be around the same levels for as we did in 24. A lot of that depends on what happens with interest rates. I mean, as I said, a nice steady line up of the lease yields over time, which I think has a pretty powerful lever. But it does take time to make its way through the business.

Terry Ma

Got it. Okay. And then on the leases that you extend that in the fourth quarter, like so we expect kinds of the incremental pickup in yield a rental revenue to kind of flow through in Q1. And then any more color on the cadence of the remaining renewals? Thank you.

Gregory Willis

Yes, I think it those that were signed in Q4 will roll through in '25. And then as we work through the $5 billion of airplanes that are rolling off the next two years, I think that will also provide an uplift to lease yields. So I think you should expect a steady grind higher on the top line.
And then I guess, finally, you need to factor in -- we don't see the market changing given the supply demand dynamics are in play. So we still see airplane shortages for a long extending three to four years based upon what's going on the production side. So I think that's going to create a shortage of airplanes that it's going to contribute to both aircraft values and lease rates being strong for the next several years.

Steven Udvar-Hazy

And coupled Greg and John, with the up accelerations of those leases that were renegotiated in a COVID, has those progressively Liberate us and us to get back to market lease rates, even by definition, core deposit scheme, those aircraft new lessees that will have a continual upward trend on the overall corporate lease yield.

Operator

Jamie Baker, JPMorgan.

Jamie Baker

Good afternoon, gentlemen. So an argument that well, a debate that Mark Streeter nine we're having because we don't really argue on. Have you thought about even greater aircraft sales into this strong markets in the mean in terms of potentially proving the value proposition of the equity? Or is there a preference just to maintain its current level of sales and then wait for that pickup in deliveries at some point down the road?

Gregory Willis

That makes sense. Yes. Look, I think as I touched goes, I think and we are looking at that carefully. Sorry, let me just quickly start up and then Steve will turn it over to you. As I said in my remarks, we're looking at to be about $1.5 billion in sales in 2025. That's pretty close to the $1.7 billion we had in 2024. You know, sales programs are largely also opportunistic in the prior quarter.
I also talked about the fact that we're being approached just from fairly significant buyers who want to do larger scale, managed portfolios. So with all these factors, we have to look at opportunities and what's in front of us. But generally speaking, I think we're biased towards keeping about the same level of sales.
Proceeds seems to be a good balance every year. If there is a strongly compelling reason why I believe we should sell X amount of more. It will take a look at it. But I think currently, or plans are to remain about our current levels.

Steven Udvar-Hazy

Scandic to add to that arose net gain of about that. So hit all of I think we're also very interested in developing structures where we still maintain that relationship. So the airline customer and bring in a passive institutional investors into the managed structure vehicle while we have a small equity stake.
But you have a large portion of the profitability in the end of lease disposition of those aircraft and a sizable management's key during that tenure of these arrangements. So that could be an avenue where we may add some additional assets to and transfer them to these new entities.

Jamie Baker

Okay. That's helpful. All good points on. Thanks, guys. And then second, and I guess it gets back to the comment that Greg made in the prior question about the steady grind. You know, AerCap had this slide that showed the percentage of, let's call it sort of cold media and hop leases as a percentage of total for each year. You know, the cold leases being the least profitable reflecting.
Can you comment on it's just a moment ago, but if we were to focus just on those less profitable leases at Air Lease, would you have an estimate for 2024, 25 and 26 as to what percentage of the book they represented? Just trying to the visual behind the burning off of these leases as they are being overtaken by the stronger deals that you've been talking about? Everything Jones prepared remarks. I hope that's clear. Thanks in advance.

John Plueger

Greg, you want to talk about?

Gregory Willis

Yes, we don't have the page in front of us are familiar with the numbers, and that's why we tried to give that color in the prepared remarks about a$ 5 billion worth of aircraft that were COVID era, leases that are rolling off of the next two years.
I think you can take that as a ratio of the overall fleet. That was our attempt to give some color about how how quickly the ACL can move forward.

Jamie Baker

Okay. Very helpful. Thanks, everybody.

Operator

Moshe Orenbuch, TD Cowen.

Moshe Orenbuch

Great. Thanks. Apologize for some of the background last year, which as you as you look, John, at these lease renewals that are going on, in fact, are those getting better in this environment? Like in other words, you think about where they'll be up 25 and six versus, you know, what you mentioned casino in terms of upside for narrow bodies, Praxair wide bodies such that it's moving in this environment or hedge keeps?

John Plueger

Yes, the answer is unequivocally. Yes, the examples I gave on the back of the extensions we executed in the fourth quarter on a single aisles where the lease rates were higher than major concern and about flat on the wide bodies.
Both of those are against the backdrop of typically lease rates step down after the initial lease term on new aircraft. And so there this is a very significant element that we stay. And we see we see a continued continuing to strengthen in 2025 as we look at our leases that are subject to extension and that we're discussing right now.

Moshe Orenbuch

So we looked at on a very robust level Medical, but if you were at your leverage target a 10, everything kids as it was today, in other words, the lower level of deliveries into 2025, what would be at the top of your list for deploying capital? Would it be would you be looking at sale leaseback to be looking at a stock buyback with the stock? Is like could you maybe talk about that for a hypothetical standpoint?

John Plueger

Well from a hypothetical standpoint, I would just say based on where our stock is today, you know, we look at that very, very strongly and it's a compelling value today. Having said that, as I said earlier, we'll make that determination of such time when we get to our debt equity ratio. But just know very certainly that this is a very strong possible avenue for the company. But again, we withhold our decisions on that until such time as we're we want to be, especially when extra selling aircraft at a 14% premium to their carrying values.

Moshe Orenbuch

And your stock is trading below book?

John Plueger

Right.

Moshe Orenbuch

Okay. Thanks.

Operator

Hillary Cacanando, Deutsche Bank.

Hillary Cacanando

Hi, thanks for taking my questions. And because this confluence of a high level and not specific PI. in China situation, I'm hoping you could answer it, but I was wondering if those are the buyout agreement between gas and coal AMI or could there be any impact of the less the way?
I guess what specifically do you think there's any chance budget robust second titles in a good time for our path to the less delay, which I don't think the lesson we've learned a lot if that's even a possibility. But I wanted to see if there's any like high level thoughts you could provide on a possible to fire.

John Plueger

Clearly, we're just we're just not going to comment on that curve. On top of that asset again as much I guess when you talked about taking typically you guys to get to them a pool of all the time.
Are you assuming that interest rates remain at the phone if the current level on if there's an interest rate hike or is there more cuts if you go back to the to the constant change?

Gregory Willis

Greg. I think a lot of it depends on where interest rates are. I mean, I think the mid-teen target as more of a longer term target. There's nothing fundamentally different in our business today. Just going to take a little bit of time for that started to make its way through our $30 billion balance sheet.
So if anything, I would emphasize it's going to take time to make it work its way through. And some of it, of course, will depend on how quickly and which direction interest adjustments. Since our last call, although the clips and anticipate only affects our incremental borrowings, all of our existing bonds will issue two, three, four years ago of and demand will often say the interest paid on those bonds is what it is.
We can't change that. But if interest rates improve for us, it will affect all of our short-term bank borrowings. And any new bond offerings, as Greg said, of that number would have to be pretty substantial seven major impact on the portfolio debt coming down proportionately final home.

Operator

Stephen Trent, Citi.

Stephen Trent

Yes, good afternoon. Gentlemen, and thanks for taking my question on a quick one here are to quickly shift. First, when do you think about what may not, but tariffs today? And I know there's not a lot of information, but is it conceivable that leasing to actually gain a little favor over aircraft purchases in the case of Airbus or and by our customers here on that, the impact of a tariff could be rolled over the long life of at least as opposed to a one-time hit from purchasing on spot? Or I know there's not a lot of information on just sort of high-level trying to get my being around it.

Steven Udvar-Hazy

Well, the first answer is that any cash taxes on the type of transactions rather than leasing or finance lease operating lease, the airline, the legacy airline operator, is responsible for any such tariffs or duties or taxes. The second point I want to make is there a very large percentage of Airbus aircraft. Our people are manufactured in the U.S. components engines, avionics and same goes for Boeing.
A lot of the components that go into Boeing aircraft are manufactured outside the United States. So it's going to be a pretty cool complex calculation to figure out what percentage on Airbus HC. 21 U.S. MI of even hit the euro versus the same with volume. I mean, big components of the $0.77 and 70 sevens are manufactured outside the US.

Stephen Trent

Very helpful. I definitely appreciate the color. And just one at a high level one for you here. I think again, some other previous calls, you guys had not expected aircraft supply that normalize for a couple of years. And on what you're seeing in the tea leaves from your suppliers, you have your views on that changed at all. Do you still think there are a couple of years away from normalization of aircraft production? Thank you.

Steven Udvar-Hazy

No views have changed whatsoever. We see this as a multi-year, Tom, you know, over multi-years, we don't see any change at all. We think of aircraft are struggling in short supply. The manufacturers are not going to achieve nearly the rate of production that they would want to achieve where they would need to make up for the last several years. So we're quite convinced we're in this for a fairly long period of time.

Operator

Ron Epstein, Bank of America.

Ron Epstein

Okay. Good evening. That run. So maybe just follow-up on Steve's last question. Just any sense when the industry will actually be back Ecova premiums? I mean, how long is it going to take the industry itself out of the whole in terms of the shortage of supply, if anything wrong?

Steven Udvar-Hazy

If anything wrong, we have been stretching out that time frame, not shortening it.I'll give you an example. The appetite of the airlines for spare engines.To cover for engines that are in the shop.For much longer periods and with longer lead times to an overhaul facility to even just get in.Creates a shortage of new engines, because today, a larger percentage of the production of CFME.GTS engines.
And even Rolls-Royce trance engines.Are being allocated to cover airline operations today, AOG today.And so that is a constraining factor on on both Boeing and Airbus, getting enough engines to be able to increase production rates.So that, that's one factor.
The second factor is that during the pandemic, a lot of the smaller subcontractors for both airframe and engines and avionics and DFT seats and galleys.Reduce their staffing and cut back on their On their infrastructure, and now they're being asked again to ramp it up, which means they have to invest more in machinery, and digital tools, get their hands on labor, that's trained.
And so those are all factors that are limiting the ability.Of the supply chain to get back to what you said was pre-pandemic.And it and it's not an overnight process, as you can imagine.But I would say the engine situation is the most visible to us.
In all the discussions we have with airlines.

Ron Epstein

And would you say the airlines are Getting accustomed to flying older equipment.Meaning that maybe your leases will just last longer for the foreseeable period.

Steven Udvar-Hazy

Of we we're seeing that, yeah, that's we're seeing that particularly in North America.Where with the refurbished old Northwest Airlines A220 CEO.That's more than 25, in some cases 30 years old.With the refreshed interior, the customer who gets on a jetway doesn't have any clue how old that aircraft is because most of them have been freshened up.So a lot of the 767s, earlier generation 737s, HG 20s, HP21.Are staying in service longer than what was originally anticipated. And this is to cover growth in traffic.As well as the delays in the deliveries that they've contracted for.All of that leads to us being asked to provide more aircraft than we have.Where supply is limited and demand far outpaces our ability to get enough new airplanes.

Ron Epstein

And then maybe just one last related question and and again this would be constrained by the supply chain, of course, but it kind of all else being equal, do you think that the industry needs a third supplier now? Because it seems like 2 isn't enough.

Steven Udvar-Hazy

Well, if you look at the size of the overall commercial jet population, And the forecast that it's going to go to about 40,000 airplanes. In the next 6 or 7 years.There's definitely room for a third party.
But I think that third party.And the ones that that's talked about Moses's embryer would need a partner in that program.That has financial key pockets.
But that is one possible alternative, and I know the guys down in Brazil are working on that very hard.The big question in our minds, Rob, is what engines would go on that airplane.Because if it's the same old catalog leap.1 A1B or the current GPF which hopefully will get upgraded in 2027. What engine would somebody put on that because that is a big factor. There needs to be a step change improvement in the propulsion system.Not so much on fuel burn, but more on reliability dependability and life on the wing.

Ron Epstein

Yeah that makes sense.Yeah.Cool. All right, thank you.

Operator

Katherine O'Brien, Goldman Sachs.

Katherine O'Brien

Oh thanks so much for the follow up. I just wanted to come back to the $5 billion number you gave, it was really helpful just helping us think through like what percentage of book values, tied to these COVID and releases over the next couple years, just in very rough numbers, understanding, the backdrop might be different today. It doesn't sound like that's what you guys think. Sounds like you think it might be better, but if you could snap your fingers and write those leases at today's lease rates, like what would the upside be on that pool of aircraft? Thanks so much for the extra time.

Steven Udvar-Hazy

It's hard to say because it depends on the airline.The length of the leaf extension. Or the economics of shifting the aircraft and other airlines, but the numbers could be anywhere from 30% to 50% higher.And the lease rates we currently enjoy. So as these leases come off that sort of charity period, I call it to our customers to keep them alive and kicking, as those progressively come off.Between now and the fourth quarter of 2026, we are going to see marked improvement in the lease yields on those aircraft. Especially since they're being depreciated. So the factor of the depreciated cost versus lease rate is going to be improving every quarter. Once these charity periods are over.

Katherine O'Brien

Yes, so doubly beneficial.

Steven Udvar-Hazy

Greg can give you color. Greg can comment on.Like how much of this comes off.Every quarter or every 6 months.

Gregory Willis

Yeah, I mean, we gave some color that we thought that would modestly increase over the next 4 years. I think what that means is somewhere between 150 and 200 basis points in yield improvement over that period of time, over the 4 year period.

Katherine O'Brien

Per year, Greg or the total period sorry okay.

John Plueger

Keep in mind, Katie, we've got a.Basically just about a $30 billion dollar net book of aircraft and so these significant least rate increases are very helpful, but it's trying to steer a pretty big aircraft carrier. So it just takes a little bit more time to push the carrier around versus a little speedboat.

Katherine O'Brien

Totally understood thanks again for the extra time.

Operator

And that concludes our question-and-answer session. Mr. Arnold, I'll turn the call back over to you.

Jason Arnold

Thanks everyone for participating in our fourth-quarter call. We look forward to speaking to you again next quarter. Krista, thanks for your assistance, and please disconnect the line.

Operator

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