AerCap Holdings NV (AER) 2006 Q4 法說會逐字稿

Good day, the Genesis Lease Limited fourth quarter 2006 conference call. Today's call is being recorded. For opening remarks and introductions, I'll turn the call over to Jeffrey Goldberger, KCSA Worldwide.

Go ahead, sir.

Good morning, everyone. Again, my name is Jeffrey Goldberger, and I am with KCSA Worldwide, Investor Relations counsel to Genesis Lease Limited.

Last evening, and as posted at the Genesis website at www.genesislease.com.

Representing the company today are John McMahon, Chief Executive Officer, and Alan Jenkins, Chief Financial Officer.

Before I turn the call over to John for opening remarks, allow me to read the following Safe Harbor statement. This conference call contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements may be identified by words such as expects, intends, anticipates, plans, believes, seeks, estimates, will or words with similar meaning and include but are not limited to statements regarding the outlook for the company's future business and financial performance. Forward looking statements are based on the management's current expectations and assumptions, which are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to various factors that are summarised in today's earning's release, and are described more fully from time to time in the company's filings with the SEC. We will refer you to those sources for additional information.

Additionally, this [inaudible] any obligation to update or revise any of these forward looking statements whether it is because of future events, new information, a change in its views or expectations or otherwise. This call is the property of Genesis Lease Limited; any distribution, transmission, broadcast or rebroadcast of this call in any form without the express written consent of the company is prohibited.

A replay of this call will be available from Friday March 9, 2007, until Friday, March 23, 2007 at 11:59pm Eastern Time. To access the replay, call 888-203-1112 or 917-457-0820 and enter the confirmation code 3514954. The webcast will also be archived on the company's website for one year.

At this time, it is my pleasure to turn the call over to John McMahon for his opening remarks.

Thank you, Jeffrey. I'm delighted to welcome everyone and to thank you all for listening to the company's first earnings conference call.

In my introductory remarks, I will provide the following:

an overview of our recent IPO and other related financings; a review of some important trends affecting the airline industry; an outline of our operating mandates and competitive advantages; and I'll conclude with a review of our growth strategy.

Then I'll turn the call over to Alan for a review of select financial information, our distribution policy, and some key operating metrics, and then we'll have the Q&A period.

So first of all, let's turn to the IPO and other related financings. In the past few months, Genesis Leasing has completed a number of significant capital transactions, including the following three transactions that all closed simultaneously on December 19, 2006. First of all, we closed our IPO, in which we issued 27.86 million shares at a price of $23.00 per share. As I'm sure you're aware, our ADR shares currently trade on the New York Stock Exchange under the ticker symbol GLS.

At the same time, we concluded a private placement, in which we issued 3.45 million shares, also at $23.00 per share, to an affiliate of General Electric Company. And at the same time again, we completed an $810 million securitization of floating rate aircraft lease-backed notes.

The net proceeds from the IPO, the private placement and the securitization were used to finance the acquisition of the initial portfolio of 41 aircraft from affiliates of GE. The unique combination and simultaneous closing of these transactions was Deal of the Year 2006 by the highly respected trade publication Air Finance Journal.

On January 16, 2007, our underwriters exercised their overallotment option in full, and we also sold an additional 517,500 shares in a private placement to GE, for aggregate net proceeds to the company of $103 million. More recently, we've been finalising a $1 billion Senior Secured Revolving Credit facility that will be used to finance the acquisition of additional aircraft.

So, all in all, I think it's fair to say that Genesis Lease has made a successful beginning, but it is only the beginning. In our meetings with many of you as part of the IPO process on the road show, we outlined how the company intends to grow and develop in the coming months and years. And we currently have a large pipeline of opportunity to grow, and these come from a broad range of sources. But we're being selective about the deals that we're prepared to do. We are currently evaluating and negotiating a number of prospective acquisitions, and any related announcements will be made once the appropriate commitments are in place.

Before turning to a review of our business, it is important to understand some of the market dynamics of the airline industry, and currently a number of very positive trends are affecting the industry that directly benefit Genesis. First and foremost, there is a tremendous demand worldwide for additional aircraft. Both Boeing and Airbus have reported very large backlogs of orders for new aircraft, particularly narrow bodies. For example, at the end of 2006, about 75% of Airbus's undelivered orders were for A320 family aircraft; about 64% of Boeing's were for 737 variants.

The emerging markets, such as Asia/Pacific, Latin America and Africa/Middle East have shown strong growth and increased demand during the past decade, and that remains the case. In addition, low cost carriers have provided a strong boost to the aircraft leasing market. They've quickly demonstrated the benefits of the low-cost business model, but with a traditional network model. And finally, the North American travel market has soundly rebounded from post 9/11 levels and is creating strong demand for new aircraft to replace what is an aging fleet.

This has all led to a situation where the strong and increasing demand in the aircraft leasing market, demand that is outstripping supply. In particular, models such as the Boeing 737 and the A320 family, which make up the bulk of the aircraft that Genesis currently lease, these are experiencing strong demand. The same is the case for some larger aircraft types such as the 767-300 ER, and the A330.

All of this is part of the growing trend over the past 20 years for airlines to lease an increasing portion of their aircraft. As we remarked on the road show back in 1990, where I think that leased aircraft comprised only about 18% of the total global fleet; by 2005, it was more than 30% and it's still growing.

Having said all of that, the aviation industry has long exhibited cyclical characteristics, and we are conscious of these dynamics. But it seems likely that the trends that I just mentioned will continue for at least the next couple of years. In the absence of substantial, and some would say, long overdue aircraft orders from US carriers, we would expect order levels to reduce from the recent record highs, and possibly to see some pressure increase on airline yields as deliveries increase over the next few years.

In all cases, however, we expect airlines to place an even greater emphasis on the operating lease as a means through which they can acquire aircraft and optimise their fleet planning; and we're confident that Genesis Lease is positioned to directly benefit from these trends.

So now let's focus on our operating mandate and our competitive advantages. Simply put, our mandate is to acquire and lease commercial aircraft and other aviation assets. We lease our aircraft under a long term contract to a diverse group of airlines throughout the world. Our strategy is to grow our portfolio through a crate of acquisitions while paying regular quarterly dividends to our shareholders. Specifically, the goal of our dividend policy is to pay a regularly quarterly cash dividend to our shareholders of approximately $0.47 per share per quarter. However, subject to board approval, we intend to a larger first dividend of $0.53 per share that includes the 13 days of December that we had through March 31, 2007. And as you can imagine, our dividend policy is based on the cash flow profile of our business.

One of our important advantages is our close working relationship with GE Commercial Aviation Services, which is commonly referred to as GECAS. By way of background, GECAS is one of the world's leading servicers of commercial aircraft, and currently manages a portfolio that includes more than 1700 aircraft. Our relationship with GECAS provides Genesis with a number of competitive advantages. Starting with our initial portfolio, we were able to gain access to a superior fleet of aircraft. Our fleet is comprised of modern, operationally efficient passenger and cargo jet aircraft that have long expected remaining useful lives. The portfolio is performing very well, and at the end of December, all 41 aircraft were on lease.

We have a long-term servicing agreement with GECAS through which they provide us with most of the services related to leasing our fleet, including marketing aircraft for lease or re-lease, collecting rents and other payments from the lessees, monitoring maintenance, insurance and other obligations, and if necessary, enforcing rights against the lessees. This operating platform provides us with worldwide access through GECAS's network of 23 global offices, and we benefit from GECAS's extensive industry knowledge and contacts to manage our portfolio and sort aircraft acquisitions. And finally, through our business opportunities agreement, GECAS supplements our own origination capabilities by providing us with access to market opportunities to purchase aircraft that it encounters in the course of its global operations, as well as certain aircraft directly from its own fleet. The net net is that our relationship with GECAS is a tremendous competitive advantage that enables us as a management team to focus primarily on pursuing acquisitions of additional aircraft. And while Genesis might be a new company, our management team has extensive experience in the leasing, financing, technical management sale and acquisition of aircraft, which is what we're focused on. And we're confident that our extensive relationships in the aviation industry, combined with the operating arrangements with GECAS, provide us with an efficient platform from which to make accretive aircraft acquisitions, and to manage additional aircraft with limited incremental overhead cost going forward. By the way, the Genesis team has expanded to 9 -- there are now 6 direct employees, and 3 on a consulting or contract basis.

So let's turn to our growth strategy. The goal of the business plan is to increase our lease portfolio and to increase our distributable cash flow per share by focus on a number of things. First of all, we intend to capitalise on the overall growth in aircraft leasing by acquiring additional aircraft that are accretive to cash flow, while maintaining desire portfolio characteristics in terms of fleet age, lease term and geographic concentration. We'll focus primarily on a high-utility commercial jet aircraft that have long remaining useful lives, and large operator bases, such as, again the 737 next generation aircraft and the A320 family. We believe that these aircraft will continue to experience strong demand as global traffic increases as the number of airlines focused on low cost operations that use efficient modern aircraft increases, and as emerging markets continue to develop economically. We'll leverage the agreement with GECAS in its global services platform to manage and grow our portfolio. Instead of attempting to replicate such a platform, we are concentrating our efforts in making accretive acquisitions.

Finally, while we have access to substantial amounts of capital through the exercise of the overallotment option and our $1 billion credit commitment, we will continue to access the capital markets to support our growth and to dynamically manage our capital structure to allow us to pursue acquisitions, and capitalise on market opportunities as they arise.

This concludes my introductory remarks, and I'd now like to turn the call over to our CFO, Alan Jenkins, for a review of our finances.

Thanks, John.

As John noted, on December 19, 2006, Genesis completed its IPO in a private placement, and used these funds, and along with the securitization proceeds, to acquire our initial portfolio of aircraft. The acquisition of those 41 aircraft has been a candid course of transaction between entities under common control. As a result, Genesis will include predecessor financial statements in its results.

The predecessor statements that have been carved out of GE's accounts and therefore do not reflect what our result of operations, financial position, or cash flow would have been had we operated as a standalone business during that time, nor do they provide an indication of our future performance.

As a result, I will briefly discuss the performance of the business in 2006 compared to 2005. I would like to primarily focus my comments on the Genesis business and the 13 days of operation to December 31, 2006. Please note that all results are expressed in US dollars.

Revenues for the fourth quarter totalled $41.6 million compared to $30.9 million inn Q4 2005. This represents a $10.7 million, or 35% increase, and is primarily due to the increase of the number of aircraft in the portfolio. The portfolio increased from 34 to 37 aircraft over Q4 2005, and from 40 to 41 aircraft over Q4 2006.

Net income for the fourth quarter was $7 million, compared to $4.5 million in Q4 2005. This represents a $2.5 million or 58% increase. The primary reason for this was the increase in the number of aircraft.

Revenues for the full year 2006 totalled $153.2 million, compared to $117.8 million in 2005. This represents a $35.3 million or 30% increase.

Net income was $28.8 million in 2006, compared to 21.4 in 2005, a 7.4 million or 35% increase.

Again, the results reflect the number of aircraft in the portfolio, which increased from 31 to 37 through the financial year 2005, and from 37 to 41 through 2006.

With respect to the Genesis 13 days of operations, Genesis recorded revenues of $6 million and a net loss of $932,000. The net loss was primarily attributable to costs associated with the commencement of the company's operations, including a non-cash charge of $905,000, which relates to stock-based compensation, most of which was granted upon the pricing of the IPO.

Depreciation of flight equipment -- it is a function of our policy to depreciate aircraft over a period of up to 20 years from the date of acquisition. At year-end annualized book depreciation was running at approximately 4.2% of original cost.

As John noted earlier, Genesis raised $810 million of floating-rate debt through securitization. We actively manage any interest rate exposure associated with our debt obligations, and we have entered into an interest rate swap which fixes the cost associated with this debt for the next five years. The all-in cost of that debt is 5.67% and our interest expense reflects this across the 13 day period.

Genesis did not incur any maintenance expense on aircraft during the short period; this expense arises when an aircraft transitions from one lessee to another.

From a tax perspective, Genesis is resident in Ireland, which is considered a low-tax jurisdiction, with favorable tax depreciation for aircraft. As a result, Genesis is expected to may minimal cash taxes for the foreseeable future. We did record a tax credit of $133,000 for the 13 days, which represents the corporation tax rate of 12.5%.

Just briefly on our balance sheet, we had total assets of 1.3 billion at year end, of which $1.22 billion relates to the aircraft. The cash held at year-end was just over $42 million, which included restricted cash. The overallotment option was exercised in full in January, which has substantially increased the cash available to Genesis to acquire additional aircraft. We currently have approximately $167 million in cash, including restricted cash.

Our total liabilities equal $824 million at year-end and this primarily included the securitization debt of $810 million. At year end, Genesis had issued 31.3 million shares, this increased to 36 million shares following the exercise of the overallotment.

Now let me provide you with some of the key operating and financial metrics for the business.

With respect to some of our operating metrics, Genesis has a young, modern fleet of aircraft, which are well-diversified in terms of aircraft type, lessee, and geographic profile. As of December 06, the weighted average age of our portfolio was 5.7 years. The portfolio includes 4 freighter aircrafts; if we exclude those, the weighted average age reduces to 4.4 years. The weighted average of remaining lease term on our leases is 5.6 years, which provides strong stability around our cash flows. The average reflects a well-balanced need maturity profile which stands from 2007 to 2017. We have one aircraft lease expiring in 2007, which is the subject of a letter of intent with a new lessee for an 8-year lease term up to 2015. This arose as a result of Ajet Aviation of Cyprus defaulting on their lease obligations during the fourth quarter of 2006. However, GECAS placed this aircraft with Excel Airways with no downtime on the aircraft. As a result, the portfolio was operating at 100% utilization through Q4 2006.

With respect to our financial metrics, given that we have only been operating for 13 days at the year end, I would caution against attaching too much significance to certain metrics at this stage.

The current annual lease/revenue yield over book is running at approximately 12% on our initial portfolio. The contracted lease revenue for 2007 on that initial portfolio would exceed lease revenue in 2006 by approximately 10%. Genesis records EBITDA of $2.6 million or 43% of total revenue across the 13 days. However, the EBITDA results are skewed as a result of the additional SG&A costs as a result of the commencement of operations and non-cash charges for stock compensation. Excluding the commencement of stock compensation costs, the estimated adjusted EBITDA was $5.6 million or 93% of total revenue.

At year end, our total debt to book capitalization was 63%. As a result of the overallotment option, this percentage has decreased to approximately 58%. We are a conservatively leveraged company; this allows us to raise relatively inexpensive debt. It reduces any refinancing risk, and is also consistent with our policy to make quarterly dividend payments to our shareholders. However, we may operate for shorter periods of time at higher leverage, particularly through our revolving credit facility.

In December 06, Citigroup and Wachovia committed to provide Genesis with a $1 billion Senior Secured Revolving Credit facility. The commitment permits initial loan in an aggregate amount of $250 million, with an option exercisable by Genesis to increase the amount available by an additional $750 million during the first 18 months. The facility allows for advanced rates of 65% to 72.5%, and permits revolving borrowings for the first three years, with the option of a two-year timeout thereafter. This facility, in conjunction with the additional cash available for the company, strongly positions Genesis to execute its acquisition strategy.

On a go-forward basis, the company will also be focused on other cash metrics such as distributable cash flow generated by the company in order to support our quarterly dividend payments to our shareholders. Our policy, as John noted, is to pay a regular quarterly dividend to our shareholders in the amount of $0.47 per share per quarter. Subject to board approval, we intend to pay a larger first dividend of $0.53 per share for the period from December 06 through March 31, 2007. We expect the board to consider this first dividend towards the end of Q1, 2007, and for the dividend to be paid in May 2007.

With that, I would like to turn the call back to John for his closing remarks.

Thanks, Alan.

It may help just to restate quickly was Genesis Lease is about. We generate significant cash flow under long-term leases with a diversified group of commercial aviation customers. We intend to distribute a portion of our cash flow to our shareholders while retaining cash flow for reinvestment in our business. Retained cash flow may be used to fund acquisitions of aircraft and other aviation assets. It could be used to make debt repayments or for other purposes, as determined by our management and Board of Directors.

Our objectives are to maintain and increase distributable cash flow per share, to acquisitions of additional aircraft and other aviation assets beyond our initial portfolio of 41 aircraft. I think overall as I said earlier, Genesis Lease has made a successful beginning; but it's only the beginning. And the company intends to grow and develop in the coming months and years. As mentioned earlier, we're actually not finding any shortage of opportunities to grow, but we're being very selective in the deals that we're prepared to do. And we believe that this is in the best interest of our shareholders, and we look forward to the support of these same shareholders going forward, and in turn to delivering attractive returns to them over the long term.

On behalf of the board and employees of Genesis Lease, I'd like to thank you for your participation today, and I would now like the operator to open the conference call to questions please.

[OPERATOR INSTRUCTIONS]

We'll go to Mark Streeter with JPMorgan.

Good morning, gentlemen, I'm with Pakhi Eder as well.

Question for you, John. You mention the plethora of opportunities that you're looking at. I'm working if those are exclusively with GE, or what is sort of the mix of looking at GE's promised pipeline of actions for Genesis this year and going forward versus outside opportunities?

There's actually no shortage from either source. We're looking at a lot of opportunities that we're originating ourselves, and equally in keeping with the intentions that were expressed in the road show, we're looking at a range of opportunities with and from GECAS. When I say "with", as I think I outlined again on the road show, the intention was to look at partnership opportunities where GECAS may be doing deals with airlines where we would take some of those aircraft, and they would take others.

Equally, we would consider purchases from their portfolio. But I'd have to emphasize that while we are evaluating and negotiating on those, we're also evaluating and negotiating a range of other opportunities that have, that are not originated by GECAS.

And just as a new company, you still have pretty significant size, are you, those opportunities outside of GECAS. It's pretty well known that there are some large portfolios that are being marketed; is that something that you'd look at? I know you can't go into specifics, but I'm just wondering -- should we expect some of your deals outside of GECAS to be small portfolios? Large portfolios? Simply single aircraft acquisitions? I'm wondering how we should think about that.

Again, we're looking at pretty much everything that's in the market, in other words, the deals that you would generally be aware of, we're certainly looking at. We're also looking at a range of deals that you wouldn't necessarily be aware of; and those would be the smaller types of deals involving one, two, three or four aircraft.

So, again, as you correctly pointed out at the start of that observation, we're simply not in a position to provide any level of detail at the moment on those discussions or negotiations. But all I will say is that we're looking at and evaluating on its merits all of the opportunities that are there, and there's no shortage of opportunities.

And, speaking of that, I was wondering if you could talk a little bit about supply and demand of aircraft in terms of the impact on pricing and specifically lease rate factors for those of us who are trying to model going forward, acquisitions, I mean you have some sort of competing dynamics here in that lease rates, naturally, are going up, but the appraisers, or what you would consider the denominator of that lease rate factor of the equation in terms of current market values are also rising and there's a lot of competition out there from some of your newly public peers.

So I'm wondering, what are some of the trends you're seeing in lease rate factors?

Well, lease rate factors. As you say, there's a direct relationship between the lease rate and the price of the aircraft. Let's look at the lease rates in the first instance. Lease rates are still firm and trending upwards. Some people who are selling aircraft as a consequence of the supply/demand imbalance in the market, and clearly trying to secure top dollar for those aircraft. We look at the long-term earning capabilities of the aircraft, and we negotiate what we believe to be fair deals for both parties, recognizing the attractions and merits of the current cash flow as contracted with the lessee, and the future prospect. That's what I mean about us being selective. There are opportunities that we look at that we passed on where the relationship between the lease rental and the perceived capital value of the aircraft just made no sense. So you're implicitly asking that when you talk about lease rate factors. We're trying to secure deals, and believe that we will secure deals where the lease factor, in other words, the lease rate as a percentage of the actual price that we pay for the aircraft, will make sense, because remember we're focused on the cash flow characteristics of the lease and making sure that any acquisitions that we make are equated to our distributable cash flow per share.

So I hope that answers your question.

It does. Let me just ask one question and I think Pakhi has a question or two, and then we'll wrap up here.

On infrastructure, you mentioned there are six people in house and three consultants? What are the holes at this point in the infrastructure that are, that you're trying to fill quickly here? What are the needs of the organization going forward at this point now that you have these nine employees?

Well, I would guess that by the end of 2007, we'll be at a staffing of somewhere around 10 or 11 people, and they cut across -- you need to remember, we're describing here, what I would term a senior management team, because we already employ 250 people; they just happen at be at GECAS, to do all of the operational aspects of the business, the day to day stuff.

So we're filling out an organization with a slightly different mindset. Clearly, given that we're a US public company, we have our reporting obligations and so on, and we're filling out the finance function in that regard. We're raising a substantial amount of debt through our facility, and we have the appropriate resources there.

Going forward, we will probably introduce a specific technical capability into the organization, although at the moment we are contracting with people we know and trust in that regard.

Quickly, Pakhi?

Hi. I just have a couple questions. First off, can you explain the maintenance benefit in this quarter, and what you expect with that going forward?

Yes, I'll do that, Pakhi. The maintenance expense line item reflects, as I said earlier, the costs associated with transitioning one aircraft from another. I'm sorry, just to confirm that your question is with respect to the maintenance expense benefit in the Q4 2006?

Yes.

Okay. Well, the process that GECAS has to go through in order to transition an aircraft from one to another, and before a deal is approved, they would have to prepare a budget to estimate the cost associated with a transition. That budget may be prepared well in advance of the physical inspection of the aircraft. There were a number of transitions in the first nine months of 2006 whereby an accrual was made as a best estimate for some of these transitions.

Subsequently, then, the invoices come in and that accrual gets reconciled to the actual costs which occurred for some transitions in Q4 in 2006; this actually resulted in a release in certain accruals given that the costs were lower than anticipated at the time.

Okay. And just the one last follow-up -- your interest expense and tax account for a little higher than what we had anticipated; what do you expect going forward with these items?

Again, are your comments specifically with respect to Q4?

Yes. Q4.

Okay. Yes, I think we have to be just cautious when you compare or reflect on the actuals when you're also reflecting on a period that includes the predecessor's statements. The Genesis cost to funds and effectively how the business is leveraged is different to the carve out in the predecessor, so our interest expense is effectively based on the all-in rate of 5.67% and based on our current securitization debt of $810 million.

From a tax perspective, again, we are very different on a go-forward basis; Genesis is tax-resident in Ireland. The corporation tax rate in Ireland is 12.5%, aircraft are tax-depreciated over an 8-year period, so going forward, Genesis would be expected to pay minimal cash taxes.

Okay. Thank you very much.

[OPERATOR INSTRUCTIONS]

We go next to Gary Liebowitz with Wachovia Securities.

Hello, John. Hello Alan.

Hi, Gary.

Hi, Gary.

John, in your comments you mentioned that there's a lot of market strength, and that they have some widebody models. I noticed that in your current portfolio, there's only one passenger widebody plane, an A330-200. Is that an area that you are specifically looking to increase your exposure to?

Well, again, to look at the range of opportunities -- if you happen to be looking at a portfolio of aircraft, there will from time to time involve widebody aircraft. If, equally, you are looking for other opportunities as an individual deal, it may be the narrow bodies or widebodies. When we look at those deals, we have to consider them on their merits, and their merits, what we mean is the strength of the market for that aircraft type over the long run. It's market penetration, how many, what's the number of aircraft out there, and how many operators of that aircraft exist. There are key considerations; we do not wish to concentrate, as you can imagine, when you're dealing with widebodies, almost by definitions, you're dealing with smaller numbers of aircraft in the market, and smaller numbers of operators the narrowbodies. So when you look at those widebodies, and when, don't get me wrong, nothing against widebodies, but what we want to make sure is that we acquire aircraft that the airlines actually want. So we look at the airframe/engine combination, and the market penetration with respect to that aircraft type. So, how many aircraft are out there, how many operators, and what are its future prospects. And that's what we make our decision on. Nothing at all against widebodies, but we are looking at some deals that prospectively could include them.

Okay. I understand. And also, just to attack the question a little differently that was asked earlier -- on the road show, you talked about perhaps adding 10-20 aircraft a year to the portfolio. Based on how you see the market today, is that still a reasonable estimate of how we should perhaps model the asset growth?

You need to look in terms of -- I can't really comment in terms of forward looking statements and all that sort of good stuff, but a good indication of the intentions relates to the fact that we're putting in place a $1 billion credit facility. The clear intention is in the appropriate time frame to use that, and as you say "what that appropriate time frame will be" is dictated by the nature of the opportunities that we find and the prices that we're willing to pay. We are confident, and I think with good reason, that we will be able to execute a number of deals that make eminent sense to our shareholders and our business going forward.

Thank you very much.

We go next to Andrew Light with Citigroup.

Hi, John and Alan.

Hi.

Question on the dividend policy -- I know that [inaudible] you need to grow that 5% to 10% per year. Is that something that you could grow quarter on quarter in line with acquisitions of aircraft, or is that something that you would just keep flat for a year and then just reset to another level, depending on what's been achieved in the year?

Well, one of the key things associated with prospective increases in dividends, because as I mentioned in the call earlier, the whole rationale attached to the business and the model, the business model that we employ is to try and increase our distributable cash flow per share to put ourselves in the position to provide our shareholders with an attractive and a growing dividend. The growth in that dividend, or any increase in that dividend, clearly is a matter for the board to consider, but the sustainability of that increase is also a key factor. So it's not simply a case of every time you make an acquisition, you correspondingly make an increase in dividend, but you will look at the portfolio characteristics as it develops over a period of time. The board will consider that; it will consider the cash flows associated with that bigger portfolio and make a decision on the appropriate level of increase in respect of the dividend.

Okay. Well let me just ask another question regarding [inaudible] notes, pretty favorable outlook for the airline industry. But there are bankruptcies going on, and there are certainly some significant safety issues particularly in Asia. I was just wondering at what point do you think it will be prudent do make a default provision, a bit like Aircap for example, and also given the situation with Garuda, which I think is one of your clients, although not your plane. Are there any indications of the reduced safety there, in terms of lease terms, insurance, creditworthiness, and so on?

I guess there is a number of questions built into that. Let's take the insurance one first. As you probably are probably well aware, in the aircraft leasing industry, the primary responsibility for the placing of insurance rests with the airline. But the leasing company then puts in place contingency insurance to make sure that in a peculiar situation where for some reason the airline's insurances were not effective, that we're still well covered. So I can't say whether or not the recent accident in Indonesia would have had an impact on premia paid by Indonesian Airlines. It's possible that it will. But there's always an ongoing obligation to have appropriate levels of insurances in place in respect of the leasing of aircraft anyway. So that's kind of the first bit.

Maybe so that I'm clear, can you remind me of the first part of the question?

It was about default provisions, you had the situation with Ajet, and...?

I think it's very instructive to look at the situation with Ajet. Because we have, one of the things that we will look at over time is how GECAS manages on our behalf these situations. It may be appropriate at a point in time to say that generally speaking, in these situations, you do suffer some level of loss and across the portfolio, you should make some level of provision. That certainly is not the case currently. When we analyzed the portfolio before we bought it, and looked at situations that may have arisen then, and more particularly, when we looked at the Ajet situation, there was effectively no loss or no downtime associated with that aircraft. Not only was there no loss of revenue, GECAS very quickly put it on a direct lease to Excel Airways. And while that lease ends in April, a new lease has been agreed with a new lessee for eight years, to 2015 from this year forward. So I think GECAS as a servicer is performing extremely well, so we'd have to look at the situation over a slightly longer term before we could draw any conclusions.

Aircap or anybody else, frankly, have a different portfolio of aircraft. Nobody knows better than me, because I was involved in that portfolio for more than 8 years, but there were a lot aircraft in there such as Fokker 100s and so on. So there was a different track record at work. So here we're talking about a portfolio of essentially brand new relatively young aircraft, which as a portfolio would be managed dynamically, but you would need to look at the characteristics of that over the long run before talk about making default provisions.

Okay. Thanks a lot.

Okay, we go no next to Doug Smith with Fir Tree Partners.

Hi. John.

Hi Doug.

Could you just comment how you expect to get fair pricing for the acquisitions that you're looking at? As you mentioned, so many sellers are looking for top dollar. For example, are you looking at situations that are less competitive for one reason or another?

We're looking at a variety of situations. Some where what we can bring to the table, particularly by bringing to the table the fact that GECAS will be managing the lease on an ongoing basis, as well as our own particular capital structure and so on. It's genuinely allowing us to consider deals in a pretty competitive fashion. We had seen deals where there are certainly others out there who are prepared to pay substantially more than we are, and good luck to them, if they are. We are also finding deals and in a position to secure those deals, as it were, not subject to financing, because we have the wherewithal to execute. That brings some leverage to the table, and we're in the process of negotiating on a number of those deals right now.

Can you comment on the number of deals you have in the pipeline?

I wouldn't want to give you specific numbers of aircraft; all I can say is that we're looking at a very large number of aircraft in those opportunities; some of those opportunities are portfolio opportunities; many of those opportunities are smaller transactions, so one to three or four aircraft as a grouping. By no means are those transactions all with GECAS; in fact, I would say on balance the opportunities are currently greater outside of GECAS than within GECAS, but we're also looking at a number of deals with GECAS.

Again, I'm, as you will readily appreciate, I need to be careful about what it is that I can or cannot say. But what I can say is that what we said we would do on the IPO road show is what we're doing.

Okay.

And I have no reason to change anything that we said on that road show.

Okay. And then lastly, would you expect the pace of the deals to be relatively even throughout the year, or will they be back-end loaded?

Not necessarily. Well, there's kind of a flow, a deal flow throughout the year. Generally speaking, Q3 is slower than other quarters. So and given that we effectively started operations on the 19th of December; it's not unreasonable to suggest that it takes a little bit of time to get up and going in Q1. So, although we have some of Q1 left, things will be modest in Q1, you would expect the pace to pick up somewhat in Q2, be slower in Q3, and Q4 is generally a busy quarter.

Great. Thank you very much.

And we go next to Dan Shedivy with JPMorgan.

Hi. Since all the longer questions have been asked, I'll just ask the quick housekeeping questions. Is the diluted share count the same as the basic if I add up the shares in the press release of 36,006,500?

Sorry could you repeat the question, you broke up there.

What should we be using as a basic and a diluted share count at year-end? Is it the 36,006,500 from the press release when we add things up or are there other options outstanding? And things of that nature?

The difference between basic and diluted at year-end is very marginal, as a result of the restricted stock options that were issued at the IPO. The issued share count as of 31 December was 31.31 million shares. I think the difference between basic and diluted, I don't have the specific number to have, it's very marginal.

Okay. And then how much cash is on your balance sheet currently?

We have approximately $167 million of cash on our balance sheet at the moment, some of which is restricted.

Lastly, in John's opening remarks, he commented that the additional proceeds were a net number, but in the footnote it says gross. Not that it's a big deal, I'm just curious -- is that a net or a gross number?

The number in the earnings release is gross, and then there would be some fees associated with that transaction, and then the company would ultimately receive the net number.

So the 108 is the net number?

No, the 108 is the gross number.

Okay, thanks. That's it for me.

And we go next to Joe Gill with Goodbody.

Good afternoon. I've got three questions. First, just in relation to the default provision if you, you know if there is a possibility of that. [inaudible]

[inaudible] that exists between the two companies. We don't speak for GECAS, we don't make any views known in respect of what it is that they do or they don't do. What we can look at is the situation as it relates to our portfolio, and our business going forward. So when we looked at our portfolio of aircraft, the 41 aircraft that we bought in December, and we looked at the default characteristics as it were that may have existed within that portfolio over the predecessor period, we effectively found no basis for making any provisions against that because despite the turmoil that followed in the aftermath of 9/11 and certainly in respect of this portfolio, there was no basis to do anything like that. And that has continued to be the experience through the recent Ajet situation.

So, going forward, as we grow and develop as a business, it will be appropriate to look at the dynamics of our portfolio and what happens in practice. And to tailor whatever has happened in practice into appropriate accounting for that.

If you then look at airline expectations and how they have changed or moved in respect of sale and leasebacks -- I'm glad you asked the question. I'm not just saying that, I'm genuinely glad you asked the question because it reflects back a little bit on what I said earlier. There are some people in the market who are seeking to take a what we would call an extraordinary capital gain through the sale of aircraft and are willing to pay, and at the same time are trying ratchet down the lease rentals that they pay on those aircraft. We're not interested in those deals. There are other airlines who, to be fair to them, are saying "we're prepared to take a fair price on the aircraft, a long-run value on the aircraft, and we're more interested in the lease-rental that we're going to be charged on the lease-back or we're more interested on the features of the lease and the long-term nature of the lease that we put in place with you". They are deals that we're interested in, and they are deals that we're focused on, just in that sale and lease-back market. I think there's two types of airlines out there relating to the current supply/demand imbalance.

Okay.

And the metrics, well are they...

Thanks, John. Joe, I think you asked with respect to portfolio acquisitions. I suppose taking a broad perspective, one would first turn and whether a particular aircraft type is the right type from a strategic perspective. That way we're comfortable that we have sufficient liquidity in the market to sustain its value, and having got comfortable that we are targeting the right aircraft types, then we would perform a relatively simple cash flow analysis and where we're trying to determine what the risk adjusted IRR would be. So you would look at the cash flow generating capability of the lease, the credit profile of the lessee, and the residual value assumptions on the aircraft. We also, of course, take into consideration the impact that will have on any particular lease on our distributable cash flow, and how that goes through on our dividend-paying capabilities, and increasing the dividend going forward.

Okay. Thank you.

And at this time we have no further questions. I'd like to turn the call back over to John McMahon for any additional closing comments.

Okay. All I wanted to really say is thank you for joining us today on our first earnings conference call. We look forward to future such calls, and with that to one side we can now concentrate on growing and developing the business. So thank you very much.

That does conclude today's call. We thank you for your participation. Have a good day.