AerCap Holdings NV (AER) 2008 Q4 法說會逐字稿

Good day, and welcome, everyone, to the Genesis Lease Limited fourth-quarter 2008 earnings results conference call. This call is being recorded. At this time, I would like to turn the call over to Mr. Jeffrey Goldberger. Please go ahead, sir.

Thank you, Angel, and good morning, everyone. Again, my name is Jeffrey Goldberger, and I am with KCSA Strategic Communications, Investor Relations consult to Genesis Lease.

The Company's Q4 and year-end earnings release was issued this morning and is posted on the Company's 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 his opening remarks, please allow me to read the following Safe Harbor statement.

This conference call contains 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, peaks, estimates, will or similar words and meaning, included, but not limited to, statements regarding the outlook for the Company's future business and financial performance.

Forward-looking statements are based on 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 summarized in the earnings release and are described more fully from time to time in the Company's filings with the SEC. We refer you to those sources for additional information.

Genesis expressly disclaims any obligation to update or revise any of these forward-looking statements, whether 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 is available from today Wednesday, March 4, until midnight Wednesday, March 11, 2009. For access to the replay call 888-203-1112 in the United States and Canada, or internationally at 719-457-0820, and enter the confirmation code 2407392. The webcast will 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. John, the floor is all yours.

Thank you, Jeffrey, and welcome, everybody, to our fourth-quarter and full-year 2008 earnings call. Despite a very difficult business environment, our globally diversified portfolio of predominately latest-generation fuel-efficient aircraft continued to deliver solid cash flows and profitability during the fourth quarter. Alan will provide details of the financial results shortly, but in summary, Q4 net income increased 66.7% from Q4 2007 to $10.7 million, producing earnings per share of $0.30. Full-year net income increased 4.5% to $40.9 million, producing earnings per share of $1.14.

We were able to deliver these results despite the fact that we had a number of airline defaults that impacted our release revenues. While we had four aircraft off-lease for much of the fourth quarter, the rest of the portfolio performed well, and you will note that customer receivables at year-end were minimal.

Late in the fourth quarter, our servicer, GECAS, secured new lease contracts for the four aircraft that were off-lease. You may recall that two of these aircraft were 737-800s, formerly operated by Futura of Spain. The other two aircraft were A320s, operated by Deccan of India. Deliveries of the four aircraft to new customers are currently contracted to take place in the second quarter. However, there is a risk that one of the customers may not be in a position to take delivery. GECAS is currently in the process of examining alternatives, and we still expect all four aircraft to deliver in the second quarter.

We expect 2009 to be a challenging year for the commercial aircraft leasing industry, and in that respect, one of our customers is currently in default with respect to its lease payment obligations on two aircraft. Genesis understands that the customer's in the process of securing new investment capital, which could eliminate the need to repossess these aircraft.

As is typical of operating leases, we hold security collateral in respect of such possibilities. In this case, the security held represents four months of lease rental for each aircraft. As we have said before, the ability to repossess and redeploy aircraft is a fundamental aspect of operating leasing, and in the case of Genesis, these capabilities are provided by GECAS through our servicing agreement.

97.6% of our portfolio by value is made up of latest-generation versions of popular aircraft types. It is a well-balanced portfolio by manufacturer, with Boeing and Airbus representing approximately 52% and 46% by value, respectively. Our contracted cash flows come from a globally diversified customer base, with no undue concentrations with any one airline or in any one country. This approach to portfolio management helps to reduce the impact of problems with some of our airline customers, generating solid cash flows and profitability without a dependence on aircraft sales.

While our main focus as an aircraft leasing company is to grow the business through aircraft acquisitions, it is necessary to strike a balance between various opportunities, especially in light of the fact that both our stock and debt are trading at discounts. For example, our stock continues to trade at a substantial discount to a book value per share of more than $15, after adjusting shareholders' equity for the mark-to-market of interest rate swaps in OCI.

And during the fourth quarter, we commenced our previously announced share repurchase program, buying 1.79 million shares, or about 5% of our issued shares, at an average price of $3.12 per share.

Similarly, we took advantage of opportunities in the fourth quarter to repurchase $13.5 million of our securitized debt at a substantial discount. Not only did this repurchase represent significant value, but it also reduced refinancing requirements at a later date. So far in Q1, we have repurchased an additional $10 million of our securitized debt at similar discount levels of those achieved in Q4.

We have a strong liquidity position which we will seek to manage carefully through 2009, while also seeking to deploy capital to take advantage of opportunities.

The global aviation industry has been resilient in the face of significant challenges in the past, and the long-term outlook remains positive, as air transportation continues to develop into the world's mass transit system. Airlines have ordered more than 6000 aircraft, representing more than five years of manufacturing production at current production rates.

Due to the downturn, it is increasingly likely that the current order book will see some cancellations, and will be stretched out over a longer period of time through deferrals. From today's perspective, the industry will require more than $300 billion in funding for new deliveries over the next five years, and it is clear that operating leasing is going to play an important role. However, the outlook for the industry's new aircraft delivery funding in 2009 is currently unclear, with potential for a funding shortfall due to tighter credit markets. In addition, a number of aircraft leasing companies or portfolios are for sale, which may put further pressure on industry funding sources, assuming such sales can be completed in the current environment.

It is clear that companies with access to credit have a scarce and valuable resource in the current business environment. In the past few days, Genesis and its lenders successfully executed an amendment to our $1 billion credit facility to overcome a difference in opinion about the application of a certain covenant in respect to the fourth quarter, when there were no drawings under the facility. Although the amendment increases our margin and commitment fees, we believe that it was very important to confirm our continued access to the facility, and we are confident that having access to this funding is a significant competitive advantage for Genesis, especially in a severely constrained credit environment. Alan will provide additional background on this as they relate to our [ability] as part of his review of the financials. Alan?

Thanks, John. As John noted, in a very difficult environment in 2008, our business continued to deliver strong cash flows and profitability through all four quarters of the year. At year-end, the weighted average age of our portfolio was 6.6 years. Excluding our four freighter aircraft, which typically enjoy longer useful lives, the weighted average age reduced it to 5.7 years.

Currently 50 of our 54 aircraft are in operation with 34 airlines in 19 countries. As John noted, the remaining four aircraft are subject to leases with two new customers for delivery in the second quarter 2009, albeit there is a risk that one of the customers may not be in a position to take delivery. Our weighted average remaining lease term on the 50 aircraft in operation is 4.5 years, and increases to 5.2 years if we add leases contracted but not yet delivered. Overall, our lease terms reflect a well-balanced maturity profile extending out to 2020, which continues to provide visibility around our revenue cash flows.

The weighted average number of aircraft units in our portfolio increased from 44.5 in 2007 to 53.5 in 2008. As a result, our rental revenues increased substantially year-on-year from $181.3 million in 2007 to $216 million in 2008, an increase of 19.1%, despite the impact of lost revenue from defaults in 2008. In total, Genesis repossessed six aircraft in 2008, two of which are flying with new customers, four of which are subject to signed leases. There was no downtime in 2007 on our aircraft, so the year-on-year utilization rate dropped from 100% in 2007 to 96.1% in 2008.

Our rental revenues for the quarter were $52.4 million compared to $54.9 million in the fourth quarter of 2007, representing a decrease of 4.4%. This decrease is primarily due to the four non-revenue-generating aircraft during the fourth quarter, which resulted in a utilization rate of 91.6% for Q4 compared to 100% for the same period in 2007.

Total revenues were $224 million and $188.1 million for 2008 and 2007, respectively, an increase of 19.1%. Total revenues for the fourth quarter were $58.9 million compared to $55.6 million, notwithstanding the Q-on-Q decrease in utilization rate and rental revenues. During the fourth quarter, Genesis repurchased $13.5 million of our securitization notes for a total price of $7.5 million, including transaction costs. Other income includes a $6 million gain related to this transaction, which more than offset any reduction in rental revenues.

Depreciation for the quarter was $19.8 million compared with $18.9 million for the same period last year. Depreciation for the full year was $78.7 million compared with $62.3 million in 2007, an increase of 26.4%. Depreciation increased as a result of the increase in the number of aircraft, but also due to an increase of $4 million in the depreciation charge related to planned major maintenance costs for the year.

Interest expense for the quarter was $19.3 million compared to $18.8 million in 2007. Interest expense for the full year was $71 million compared to $55.2 million in 2007, an increase of 28.5%. Our blended interest costs for the year, excluding commitment fees and the amortization of any financing costs, was 5.83% in 2805 compared to 5.75% in 2007. Interest expense increased as a result of the increase in the number of aircraft, but also due to the increase in leverage on two aircraft, one of which was acquired in 2008.

In addition, interest expense includes $5.3 million and $3.8 million, respectively, in 2008 and 2007 relating to commitment fees and the amortization of financing costs on our $1 billion credit facility, so an absolute increase of $1.5 million. The facility was in place for the full year in 2008, and we also upsized to the full $1 billion in October of 2008.

We recorded a maintenance charge of $2.1 million during the fourth quarter and $3.4 million for the full year. The maintenance charge for the quarter and the year increased compared to 2007, a direct result of the increase in defaults related to the repossession of six aircraft in 2008. These defaults can result in lost revenue, but also can result in additional maintenance expense arising from the repossession of an aircraft and work required to prepare the aircraft for delivery to new customers.

We incurred $5.0 million of SG&A in the quarter compared to $6.7 million in the same period last year. While SG&A increased on a full-year basis, the 2007 number was not a fully-scaled expense given the stage of development of the Company in the earlier part of 2007. SG&A in the fourth quarter of 2008 actually decreased by $1 million compared to the third quarter of '08, and so it leveled off as the Company has developed a solid infrastructure platform at this stage.

With respect to tax, Genesis does not expect to pay any material cash taxes for 2008 or for the foreseeable future. Our effective tax rate is at 13.2% for the year, similar to last year at 13.4%. Our tax is a function of Genesis being a tax resident in Ireland, a low tax jurisdiction with favorable tax depreciation rules for aircraft.

So in summary, our net income and EPS for the full year was $14.9 million and $1.14 respectively, compared to $39.2 million and $1.09 for 2007, an increase in both net income and EPS of approximately 4.5%. The increase in net income was significantly impacted by the six aircraft defaults. The pretax impact of those defaults totaled $8.7 million. Net income excluding the impact of those defaults would have totaled $48.5 million, an increase of 23.7%.

The results for the year also included an increase of $4 million in the depreciation charge relating to planned major maintenance costs and the additional commitment fees and amortization of financing costs of $1.5 million on the $1 billion credit facility.

Our EBITDA was $51.8 million for the quarter compared to $45.5 million in 2007, an increase of 13.8%. EBITDA was $197 million for the year compared to $163.1 million for 2007, an increase of 20.8%. Our earnings release provides a detailed reconciliation of net income to EBITDA.

Turning to the balance sheet, we had total assets of $1.8 billion at year end, of which $1.6 billion relates to aircraft. Accounts receivable of $0.5 million mainly reflect tax and other receivables. At year-end, we had negligible lease receivables across 50 leases, a very strong performance in the current environment. Unrestricted cash was $60.2 million at year-end. Total cash including restricted was approximately $93.9 million.

Like all companies, we will be monitoring our liquidity position through 2009, which remains strong. The unrestricted cash balance as at March 3, 2009 was $74 million. With respect to our financings on the current 54 aircraft, we do have a debt service coverage ratio on the 41 aircraft in the securitization, which commences in November of 2009, and we also have an annual LTV test every September on the debt financing for 11 of our aircraft. There is significant headroom with respect to both covenants. Nonetheless, we need to monitor them carefully in the current environment, where further defaults and reductions in current market values are a possibility.

Our liabilities total $1.3 billion. Accounts Payable increased compared to last year to $35.4 million, primarily due to additional capitalized maintenance accruals relating to planned major maintenance costs. Other liabilities also increased from 2007 to $118.4 million. However, other liabilities include the fair value of our swaps of $87.1 million, which increased substantially during the year as a result of the reduction in interest rates. $1.1 billion of our liabilities reflect our debt.

With respect to our financing activities, we closed three banks financings in 2008, raising a total of $333 million. The most significant transaction was a $241 million seven-year term debt facility closed during September of 2008 where we took advantage of an attractive opportunity to remove any refinancing requirements in our fleet out to at least 2011.

During the fourth quarter, as we noted, we repurchased $13.5 million of our securitization notes at a substantial discount to par, generating a gain of $6 million, recorded under other income. Such a transaction, while generating significant value, also reduces our refinancing requirements in due course.

Also in the fourth quarter, we repurchased approximately 5% of the issued shares at an average price of $3.12 per share. At year-end, therefore, Genesis has issued 34.3 million shares. At year-end also, our total debt to book debt and equity was 70.3%, or 67.2% if we adjust shareholders' equity for the out of the money swaps recorded in OCI.

Finally, with respect to our $1 billion revolving credit facility, the facility is a warehouse facility and therefore by its very nature is a temporary facility. As noted in Q3 of last year, we refinanced 11 aircraft out of the revolver and into a separate long-term financing. This led to a period where there were no aircraft in the revolver and therefore no outstanding borrowings.

However, with respect to the fourth quarter of 2008, the Company and the lenders had a difference in opinion about the application of an EBITDA-over-interest-expense covenant. To overcome this difference, the Company worked closely with the lenders to create an amendment to the facility in order to clarify how this covenant will be applied.

The salient details are included in the release, but in summary, we have agreed that cash contributions will be deemed to be sufficient to satisfy the EBITDA-to-interest expense when borrowings are below $200 million on average in any quarter. The margin during the revolving period to April 4, 2010 will increase by 100 basis points. The commitment fee will increase by 12.5 basis points to 50 basis points. And the commitment fees will increase by a further 25 basis points to 75 basis points on September 30, 2009, but only to the extent we have not drawn down $200 million by that date. And an amendment fee was paid to the lenders in total in amount of $753,000.

So with that, I will turn the call back to John for his closing remarks.

Thank you, Alan. In summary, our aircraft portfolio performed well in 2008, albeit we had some challenging defaults and it would not be unreasonable to expect some level of default in 2009, given the current business environment.

During 2008, we raised $333 million new funding in the most difficult credit market for many decades. We have a strong liquidity position, which we will seek to manage through 2009. In terms of capital deployment, the current environment is giving rise to some very attractive aircraft investment opportunities, and clearly there are also significant value opportunities on the liability side of our balance sheet through debt and stock repurchases.

We have no unfunded commitments right now, and we have no immediate refinancing requirements. And we have recently confirmed our access to a $1 billion credit facility, which is an extremely valuable asset in the current environment.

Genesis' management and board are very conscious of the extraordinary financial and economic conditions that currently prevail, and the impact of the near-term outlook for commercial aviation, all of which weigh heavily on our stock price. We wish to assure you that we are focused not only on steering the Company through these difficult times, but also on positioning it to benefit from opportunities to restore and enhance long-term shareholder value.

As previously announced on February 25, the Company's Board has approved a dividend of $0.10 per share for Q4. In accordance with our policy, the Board will continue to review the dividend payment on a quarterly basis. I wish to express my gratitude for the continued support of our shareholders.

And with that, I would like to open the call to questions.

(Operator Instructions) Gary Liebowitz, Wachovia.

Hello, gentlemen. John, you mentioned the four aircraft that were off-lease that you hope to see re-enter service in the second quarter. Can you give us an estimate of how much deterioration in lease rates that you plan to see once those are released?

Yes, as -- Alan has the details --.

Well, in the first instance, Gary, we've incorporated in the release a summary of the leases that were executed within 2008. And you can see that indicates that lease rentals across that group went up by 8.7%. That would incorporate the four leases on the aircraft on the ground at present, because they were actually executed in the fourth quarter of 2008. And so in aggregate, there is an increase across the four aircraft relative to their previous leases.

But as we noted in our prepared remarks, there is some risk around the delivery of two of those aircraft, and we are looking at alternatives currently, but also expect that those aircraft would deliver in the second quarter.

So in summary, Gary, it wasn't a reduction in revenue. There was actually an overall increase.

Okay. Also, John, you started to talk about asset purchase opportunities. I wonder, one, if you can comment on the types of deals that GECAS might be presenting you. I understand they are actively trying to sell a lot of aircraft these days.

And also, if either the OEMs have approached you as they are finding difficulties with their airline customers being able to finance purchases.

As you can appreciate, Gary, we are essentially talking to everybody. We outlined previously the range of prospective counterparties that Genesis has in the sense of airlines first and foremost that we originate deals with ourselves in terms of purchase and leasebacks, but specifically (inaudible) newer equipment that either have just taken delivery of or are about to take delivery of. So they clearly are a significant opportunity in 2009.

Similarly, there are current owners of aircraft. And whether it be GECAS or these other lessors that on an ongoing basis look to sell aircraft, and clearly are more likely to be motivated settlers in the current environment than was previously the case. And we engage with those, and we are looking at opportunities from those sources as well.

And as you say, the manufacturers, as they look around the industry and they look at potential constraints in terms of funding in 2009, they look to work with lessors such as Genesis to see if there are ways in which we can work together to do deals that make sense both for the airlines and for ourselves.

So it cuts right across the spectrum.

Okay. Thanks.

[Ben Makavac, Riana Capital.]

First off, is there a limit to the amount of debt you can repurchase?

There is no specific limit, I believe, from a Company perspective. There may well be a limit in terms of what one can acquire in the market. As you know, our securitized debt is traded in a secondary market. It is a relatively illiquid market, in that there is only a small number of transactions on a monthly basis. So it tends to be quite opportunistic.

Just in terms of any specific limit on the Company, we do need a policy provider -- in this instance [Digic] is the policy provider within our securitization -- we do need their consent to acquire debt above a certain threshold. But we are well short of that threshold currently.

Okay. And then can you give us a little more color? The four aircraft that you placed in the fourth quarter, how do this lease rates compare to the previous lease rates that were defaulted on?

That is, I think, the same question that Gary asked a moment ago, which gives me an opportunity actually just to clarify a remark I made where I indicated that there is a summary in our release relating to all leases that we executed in 2008. The release actually excludes two of those four aircraft in that there is a potential risk around the delivery of those two aircraft.

So you will see with respect to the remaining leases we signed in 2008, including two of the four, the increase is 7.7% in aggregate. But if you wanted to focus simply on the four that we signed in 2008, the number is higher than it was for the previous leases.

One of your competitors had a similar type thing, and they showed a 23% drop in rates. You guys are saying you actually saw an increase in rates?

Yes, but again, you also need to take a couple of things into perspective. One is sometimes lease companies, to move aircraft quickly, they take a lower rental in order to secure a new customer. Clearly, there are certain benefits associated with that, not the least of which is that the aircraft gets back into revenue-generating service sooner rather than later.

Equally in this case, GECAS is our servicer. GECAS is focused both on securing the best deals possible for the Company over the longer term, and obviously puts the aircraft back into revenue service. So I guess that is where you see (multiple speakers).

It's great news. I was just surprised to hear that. Okay. Thanks a lot.

Adarsh Mashru, Dupree Financial Group.

You mentioned that there was one client who might possibly default. Do you have any other clients that are on a watch list for maybe a default or (inaudible), apart from the one that you mentioned?

We watch our airline customers very, very closely, all of them. And in this instance, there is a heightened level of concern about the customer in question, not least because they are in default on their rental payments. Again, GECAS on our behalf are very, very good at collecting rentals. And clear evidence of that is shown with the minimal level of receivables that we had, not just at the end of the fourth quarter, but if you track back throughout our history to date, it is a minimal level of receivables.

So that if a customer starts to become late in its payment, that is clearly a red flag. And in this instance, we then take action. So this particular customer that we are concerned about has missed its payments; we are concerned about it. We are highlighting that. As I indicated, there is scope for new investment into that airline, and therefore, for that situation to be resolved amicably without the need to repossess the aircraft.

But again, I think it is important that we highlight the possibility at least on this earnings call.

Thank you, John.

Scott Valentin, FBR Capital Markets.

Good morning. Thanks for taking my question. You mentioned on the call that the liabilities are attractive, your stock is attractive and then there are aircraft that are attractive as well, opportunities. Can you give more color as to how you decide where to allocate the capital?

Sure. I mean, not surprisingly, we analyze each of these potential opportunities. So we consider the returns, the risks, the impact on our liquidity and a variety of other qualitative considerations. The cycle, as John explained well, is developing such that aircraft investment opportunities are, from a pricing perspective, becoming more attractive. But clearly, there is also significant value on the liability of our balance sheet, and we have been transacting over the course of the last three months.

So it is a question of considering all aspects before deciding upon deploying that capital to ensure that it is maximizing medium-term value for our shareholders.

In terms of liquidity on the balance sheet, how low could, say, cash and other liquidity go before you'd feel less comfortable buying back debt and stock?

Well, we have strong liquidity position, as we said. Our current unrestricted cash as of yesterday was $74 million. We don't have any unfunded commitments. We don't have any short-term refinancing requirements. We don't have any requirements to post any collateral associated with derivatives. So we are very comfortable with our liquidity position.

We do have a couple of covenants within our financings to monitor, but as I indicated, there is significant headroom there. Notwithstanding that, we still have to ensure that we maintain an appropriate cash cover. And so, we have capital to deploy, but clearly we need to ensure we keep an appropriate cash flow for going forward as well.

Thanks very much.

Joe Gill, Bloxham.

Good afternoon. I've just got two questions. One in relation to the current stage of the leasing industry in total in terms of the amount of assets that seem to be for sale. What risks do you consider that poses for aircraft values and rentals in the business?

And secondly, what opportunities is it creating to either engage in M&A activity or be involved in some form of transformational deal in the industry over the next 12 months?

And the second question is in relation to what you are seeing coming through from the airlines at present. Are there many airlines trying to do sale and leaseback deals on unencumbered aircraft, more than would normally be the case? Thanks.

I'll take the second question first, Joe. Certainly there are more airlines now focused on opportunities associated with sale and leaseback of their aircraft. Because an airline has unencumbered aircraft that they can perform such a transaction on doesn't in and of itself make it attractive to us. We are very specifically focused on a certain group of aircraft, principally the latest generation 727 next-gens and the A320 [family] aircraft.

So in principle, if we look at aircraft deals on a purchase leaseback basis with airlines, we are more likely to be focused on aircraft that have probably recently delivered to the airline or are about to deliver to the airline, so a nearly new aircraft.

And then if you look at the broader industry, as I mentioned, there is quite an amount of activity or prospective activity as it relates to aircraft leasing companies or portfolios. And in that respect, it represents growth and opportunity, but it also represents potential overhang with respect to funding considerations for the industry.

Because not only does the industry have to start responding to the new aircraft delivery requirements over the course in 2009. Insofar as any of these other deals take place, an additional level of funding needs to be put in place to execute against those.

I think that is one of the reasons why we believe so firmly that having access to credit in the current environment is a critical competitive advantage, and that is why we moved as we did to resolve what was essentially a minor dispute with our lenders in a positive way to ensure that we secured $1 billion of credit to take advantage of the opportunities that are likely to be available in 2009.

Okay. Thank you.

(Operator Instructions) Andrew Light, Citi.

Good afternoon. I've got a question. Just keeping in mind -- in addition to the four aircraft on the ground at the moment, how many more aircraft are outstanding to be placed on lease this year and also next year?

We only had two aircraft that were coming off lease in 2009. And as we indicated some time ago, those aircraft have already been placed on lease. So the next available aircraft are in 2010.

2010. How many do you have then? Can you tell me?

Yes, we have seven aircraft, Andrew, where the leases expire in 2010. The first is in the second quarter of 2010, and so from an operating lessor's perspective -- actually, sorry, in 2010, but the first comes off lease in the second quarter of 2010. And so from an operating lessor's perspective, one starts to look at that 12 months out or thereabouts. And so GECAS will be speaking to those customers and remarketing those aircraft in due course throughout the remainder of 2009.

Okay. Are there any freighter aircraft within those five?

I beg your pardon?

Are there any freighter -- I know you've got a few freighters. Are they included in that five?

No, no, no, no freighter aircraft.

Okay. Second question. You have made quite a number of announcements recently in terms of beefing up the Company and the Board. Assuming that will have some impact on SG&A. Can you give us a rough idea of about how much you expect SG&A to rise this year? And are you still in an expansion mode on that front or do you feel that really in this environment you should be cutting back?

Well, like every income statement caption, it ultimately depends on the level of growth within the Company and the level of acquisitions. If I was to look at the 54 aircraft right now, I would expect the 2008 SG&A number to be -- not to be an unreasonable run rate. In actual fact, I would probably be hopeful of some level of reduction in 2009 relative to that number, simply because I think the Company has now moved into its second, more mature phase, if you like.

But in addition, if we layer on potential growth and acquisitions onto that number, clearly it would increase. But as a percentage of revenue, we would expect it to start decreasing. We do have our service arrangement with GECAS, as you know, which is a long-term arrangement which has a variable component to it. But in terms of our corporate overhead, we would expect that we would be able to add a significant number of units without any significant increase in that (technical difficulty).

And equally, Andrew, in any instances that -- the hiring of an individual into the Company is to reduce overall costs, because it essentially replaces a need to outsource that particular requirement.

Okay, thanks. Actually, just on SG&A, I don't know if you mentioned it in the call, but how much did you benefit from the weaker euro during the quarter? Is that material?

During the fourth quarter?

Yes, your dollar revenue and yet mainly euro costs.

Yes, it is not material. There is an element of our SG&A which is denominated in euros, given that we are based in Ireland. We did enter into some forward contracts and do do that on occasion to manage our overall euro/US dollar exposure. But it wouldn't be material in the context of the overall quarterly SG&A number.

Okay. Thanks very much.

Mike Linenberg, Banc of America/Merrill Lynch.

This is actually Alex (inaudible) on behalf of Mike. I just had a quick question regarding the LTV test regarding the 11 -- and I think they are A320s and 737 aircraft -- on one of your debt facilities. Can you talk about the latest appraisal date that you have on those aircraft? And if you could discuss more on the value of the aircraft at that point in time.

Sure. As I mentioned in the prepared remarks, we do have an annual LTV test on 11 aircraft within one of our financings, and that LTV test occurs each September, based on the most recent June 30 maintenance adjusted current market values. So if I were to look forward, even into 2009, when I say there's significant head room there, it is always an estimate in terms of looking out where the aircraft is likely to be in its maintenance cycle in terms of the maintenance adjusted component.

But broadly, we would have to see a current market value reduction in excess of 10% over the course of the next six months. So in access of 20% on an annualized basis before we reach the 75% threshold. And even in a situation where that occurs, then we simply have to pay down the debt to come back to 75%. So clearly from a liquidity perspective, we are in strong shape there.

Great. That's helpful. Thanks very much.

It appears we have no further questions, so I would like to turn the call back over to Mr. John McMahon for any closing remarks.

I just want to thank everybody again for joining us on today's call, and we look forward to doing it all again next quarter. Take care. Thank you.

And that concludes today's conference. We thank you for your participation. You may now disconnect. Have a wonderful day.