Air Lease Corp (AL) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter 2011 Air Lease Corp earnings conference call. My name is Jennifer and I'll be your operator for today. At this time all participants are in listen-only mode, and later we will conduct a question-and-answer session.

(Operator Instructions)

I will now like to turn the conference over to your host for today, Mr Ryan McKenna, Director of Strategic Planning and Investor Relations. Please proceed.

Good afternoon, everybody, and welcome to Air Lease Corporation's first quarter 2011 earnings call. This is Ryan McKenna, Director of Strategic Planning and Investor Relations. I'm joined this afternoon by Steve Hazy, our Chairman and Chief Executive Officer; John Plueger, our President and Chief Operating Officer; Grant Levy, our Executive Vice President, General Counsel and Secretary; Jim Clarke, our Senior Vice President and Chief Financial Officer; and Greg Willis, our Vice President of Finance and Chief Accounting Officer.

Earlier today we published our first quarter results for fiscal 2011. A copy of our earnings release is available at our Web site, www.airleasecorp.com. This conference call is being webcast and recorded today, Monday, May 16, 2011, and an audio replay will be available on our Web site. At this time all participants to this call are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer session.

At this time, I would like to turn things over to Grant Levy, who will highlight some important legal points regarding the information disclosed during this earnings call.

Thanks, Ryan.

Before we begin, please note that certain statements in this conference call, including answers to your questions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act; including, without limitation, statements regarding our future operations and performance, revenue, operating expenses, other income and expense, and stock-based compensation expense. These statements and any projections as to the Company's future performance represent management's estimates of future results, and dated only as of today, May 16, 2011. These estimates involve risks and uncertainties that may cause actual results to differ materially from expectations. Please refer to our filings with the Securities and Exchange Commission for more detailed descriptions of the risk factors that may affect our results. Air Lease Corporation assumes no obligation to update any forward-looking statements or information that might have newer information or future events.

In addition, certain financial measures we will use during this call, such as adjusted EBITDA and adjusted net income, are non-GAAP measures, and have been adjusted to include charges related to discounts on certain convertible notes and stock-based compensation expense, among other charges. A description of our reasons for utilizing these non-GAAP measures, as well as our definition of them and their reconciliation with corresponding GAAP measures, can be found in the earnings release we issued today. This release can be found on the investor's section of our Web site, at www.airleasecorp.com. Unauthorized recording of this conference call is not permitted.

With that out of the way, I would like to turn the call over to Steve Hazy, who will now provide you with an overview of our recent progress.

Thanks, Grant. Good afternoon and thank you for joining us today.

This is our first earnings call as a publicly traded company, and we are pleased to report that for the quarter ended March 31, 2011, we recorded our first quarterly positive pre-tax income of $4.9 million, and net income after taxes of $3.2 million. The Company also achieved positive cash flow from operations of $38.5 million for the quarter. Starting from a base of 40 aircraft as of December 31, 2010, we acquired 9 aircraft during the first quarter of 2011, all of which have been leased. As of March 31, 2011, we had 49 aircraft in our portfolio, at a total acquisition cost of $2.2 billion; and as of May 16, 2011, our fleet has grown to 56 aircraft across 37 airlines and 22 countries.

In the summer of 2010, we raised approximately $1.3 billion in a private placement of equity. On April 25, 2011, we completed the initial public offering of our class A common stock. After deducting the underwriting discounts and commissions, and offering expenses payable by us, we received net proceeds of approximately $868.1 million in the IPO. Following the success of these equity offerings, we believe our capital base gives us a solid platform for the continued expansion of our aircraft fleet, whether to further aircraft orders, purchases of aircraft from airlines and other leasing companies, and/or acquisition of aircraft portfolios. Our primary intent is to grow our Company organically, but we will evaluate other strategic opportunities as they arise. We are thankful for the support that our existing and new investors have demonstrated to Air Lease Corporation in our first full year of operations.

John Plueger, our President and Chief Operating Officer will now provide additional detail regarding our fleet and current lease placements.

Thanks, Steve.

During the quarter, Air Lease Corporation entered into 21 leased transactions covering 60 aircraft with 18 customers. We continue to see growing lease demand for our aircraft, particularly from the Asia-Pacific region where, during the first quarter, we concluded our largest lease transaction to date by placing from our future order stream 15 new aircraft with China Eastern Airlines. As of March 31, 2011, our fleet stood at 49 aircraft. 88% of our fleet consisted of narrow-body single aisle aircraft, and 12% of our fleet consisted of wide body, twin-aisle aircraft. The Boeing 737-800 represented the largest single aircraft type, amounting to approximately 35% of the aircraft units in our current fleet. As of March 31, our fleet had a weighted average age of 3.5 years, and a weighted average remaining lease term of 5.9 years. By the end of 2011, we expect our fleet to grow to approximately 100 aircraft, depending on the mix of narrow versus wide-body aircraft. And we expect that our weighted average fleet age will further decrease as we continue to take delivery of new aircraft in 2011 and beyond from our order book.

We have 100% of our aircraft placed for 2011. In addition, as of March 31, we were 84% placed for 2012, which represents 32 out of 38 currently contracted aircraft. And we were 36% placed for 2013, representing 9 out of 25 aircraft. We believe that the industry continues to drive towards leasing the youngest, most fuel-efficient aircraft for growth, and for replacement of older, less-efficient, less environmentally-friendly aircraft. Operationally, we have our key functions of staffing in place; and to accommodate our current and projected growth, we have moved to our permanent office space on the 10th floor of our current building.

Jim Clarke will now discuss our debt financing. Jim?

Thank you, John.

We accomplished and succeeded in a number of our funding objectives for the first quarter. As of March 31, 2011, we had established banking relationships with 17 banks. We had achieved overall composite cost of funds of 3.29%, excluding up-front fees and amortization of debt issuance costs. During the first quarter of 2011, includes 3 unsecured revolving bilateral credit facilities totaling $63 million, and increased the capacity of one of our existing facilities by $5 million. As of quarter end, we had 12 unsecured revolving bilateral credit facilities totaling $308 million.

In addition, we entered into 3 fixed rate secured term facilities, totaling $132.5 million, with interest rates ranging from 4.57% to 4.89%. And we entered into an $86 million facility, with a $40 million tranche at a fixed rate of 4.34%, and a $46 million tranche at a floating rate of LIBOR plus 2.35%. We are very encouraged by the commitment the banking community has made to the Company to date.

On April 1, 2011, we executed an amendment to our principal secured borrowing facility, called our Warehouse Facility; and this amendment took effect on April 21, 2011. This facility, as amended, provides us with financing of up to $1.25 billion. We are able to draw on the amended facility during the availability period that was extended from May 2012 to June 2013. The interest rate on the amended facility was reduced by 75 basis points, to LIBOR plus 2.5% on drawn balances; and our undrawn facility charges were reduced by 25 basis points, to 75 basis points on undrawn balances.

Greg Willis will now discuss some of the financial and accounting highlights for the first quarter.

Thanks, Jim.

As Steve previously indicated, for the quarter ended March 31, 2011, we recorded our first quarterly positive pre-tax income of $4.9 million, and net income of $3.2 million, achieving cash flows from operations of $38.5 million. This performance resulted in earnings per share on a common stock of $0.05 a share on both a diluted and non-diluted basis. Our adjusted net income and adjusted EBITDA were $11.7 million and $45.2 million respectively. This is our second consecutive quarter of positive adjusted EBITDA and adjusted net income. During the first quarter we achieved $55.2 million in revenue, which included overhaul revenue of $1.7 million, and management fee revenue of $0.4 million. It's important to note that as aircraft were added throughout the quarter, the full impact on earnings of these aircraft will be reflected in subsequent quarters.

This quarter we recorded depreciation expense of $18.1 million, and interest expense of $11.4 million. Our interest expense principally consists of $9.1 million in interest and unutilized fees. On our debt facilities, an additional $2.3 million in amortization of our deferred debt issuance costs. During the quarter we incurred SG&A costs of $9.9 million, and stock-based compensation expense of $10.9 million. We'll continue to recognize stock-based compensation expense for grants that were made during 2010 and 2011 over the respective vesting periods. However, it is important to note that this expense is non-cash and equity neutral.

With that I'll now turn it back to Ryan.

That concludes management's remarks. Now I would like to hand the call over to the operator for questions. Operator?

(Operator Instructions) The first question comes from the line of Gary Chase from Barclays. Please proceed.

Good afternoon, everybody. Wanted to just talk to the 767s that you, in the release indicated were part of that China Eastern transaction. Was that just a function of getting the right thing done in terms of placing the aircraft from the order book or is there maybe a statement by you that you're seeing some incremental opportunity maybe in the secondary market?

The acquisition of the three Boeing 767-300ER's was an integral component of the placement of the 15 new Boeing 737-800's and A320's to China Eastern. As part of that transaction, we acquired, on very active terms, the three Boeing 767-300ER's which enabled us to pick up two new customers in Asia to whom we leased those 767-300ER's, and one of those two customers, in fact, had signed up, also, for another new aircraft. So, the transaction represented a very small portion of the overall value of the new aircraft placements. It enabled us to have an advantage over other competitors who were trying to achieve success at China Eastern, and it also enabled us to expand our customer base whereby we lease the 767's to two other Asian airlines which were target customers of Air Lease.

It sounds pretty transaction-specific, not a more sweet statement of what opportunities may exist in that secondary market?

Absolutely. This was an integral part of the transaction. It has not conveyed a message that all of a sudden Air Lease is focusing on used aircraft.

And can you just give us a sense of what is the dollar value that is locked right now from March 31 into year end in terms of acquisition pipeline? Do you have a rough sense of that?

Well I think we've publicly stated that we're targeting something close to $4 billion in terms of total assets by the end of the year. We ended the quarter with total assets of about $2.8 billion, so I think you can deduct from that the estimated CapEx for the rest of the year.

Okay. There was a little bit of upside I think to that 1Q number just a snitch. Is that just pulling forward some of those opportunities inside the $4 billion?

In terms of the revenue, yes, the revenues were up a little bit higher than we expected and our interest expense was actually $2 million lighter.

And that would be the last question. If you could just elaborate on what might have driven that and how that carries forward, Jim, if you would, please.

It's the timing of when we bring airplanes onto the balance sheet, Gary, so as you know we forecasted 100 airplanes through the end of the year. A lot of that is back-loaded on the airplanes that we haven't identified to date and their upside in this is if we're able to bring those forward.

Okay, guys, thanks very much.

Thanks, Gary.

Your next question comes from the line of Greg Lewis from Credit Suisse. Please proceed.

Hi. It seems like the cancellations at the OEM's has sort of been on the rise. It seems like the projections for the year are going to far surpass what sort of I guess what Airbus was targeting maybe at the start of the year. In terms of thinking about those cancellations, are these going to present opportunities for Air Lease to maybe pick up some additional aircraft maybe ahead of where you were sort of targeting your two to three-year outlook?

Sure, Greg. It's John. We're constantly talking with all the major airplane manufactures about those opportunities. The dialogue is ongoing and we certainly plan on pursuing any transaction that we think fits within our scheme and our fleet plan. It's just a varied part of what we're doing every day here.

And just a follow up on that. Are you surprised that we've seen the amount of cancellations that we've seen at this point through '11?

Well, I think the cancellations, there is two types of cancellations. One, we have situations in North Africa and the Middle East where certain airlines are regaging, so to speak, their future fleet expansion. And then also there is some cancellations that are an outgrowth of the 77 program delays. They are not really a function of airline economics or demand for the aircraft, it's just that some of these new airplanes aren't available in the time scales the airlines were planning for.

Okay, perfect. Thank you very much.

Thanks, Greg.

(Operator Instructions) Your next question comes from the line of Scott Valentin from FBR Capital Markets. Please proceed.

Just with regard to your emerging markets since it's been area, obviously, that has been targeted for a lot of the growth in demand for aircraft. Is there any concern some of the governments there are raising rates trying to slow the economies down. Is there any concern about the demand structure at all or is the demand and supply gap so big you could have some slowdown in the economies there and would still be able to drive growth for the leasing industry and for you guys in general?

Yes, some central banks, particularly in Asia, have raised their benchmark interest rates to cool off some of the inflationary pressures. But we have not seen any negative trend so far on advanced bookings or airline traffic statistics in that region.

Okay. And just as a follow-up question, you mentioned, obviously, you have the delivery schedule and then you have some other planes you need to take delivery of outside of the manufacturers. How is the competition for those aircraft given there has been some capital raised in the space and I imagine that the younger aircraft, that segment of market is pretty competitive? Is competition still rational or is there any concern about pricing on the aircraft?

No, we think the competition is still relatively rational. For months now, many months, we continue to have on going dialogue about purchasing additional aircraft from airlines and other leasing companies. We're progressing as expected along those lines. I don't see any tremendous overheating of competition for that product. The industry, I believe on an overall basis, continues to strengthen, but we haven't seen, at least from our perspective, as always we'll only buy an aircraft if we think the deal makes sense for us and our shareholders. But I think we continue to make our normal expected progress on that front.

One final question. Some of your peers have talked about high fuel prices having a positive impact both on the value of newer aircraft, more demand, but also on the, I guess the ability or willingness of airlines to enter into lease-back transaction as they try to modernize their fleets and yet remain liquid and delever their balance sheets. Does that create additional possibility for sale lease back or you just see sale lease back as being normal course of business and don't believe fuel prices have a large impact?

I don't think it has that much of an impact. Generally speaking, obviously fuel prices -- increasing fuel prices generally speaking are not great for the industry, but to the extent that they increase, they simply buy us in favor of the very young, most modern aircraft that we specialize in. They buy airlines gravitating toward and driving towards that equipment. Recently, in the past month or so, fuel rates have actually come down a bit and we actually think that's going to help the overall airline industry for the remainder of the year.

Okay, thank you very much.

Sure, Scott.

Well it looks like that's all of the questions that have come through. So, that concludes our call for the day and thank you all very much for your participation.

Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.