Air Lease Corp (AL) 2011 Q3 法說會逐字稿

Good day, ladies and children, and welcome to the third quarter 2011 Air Lease Corp. earnings conference call. My name is Derek and I will be your operator for today. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the conference. (Operator Instructions).

As a reminder, this conference is being recorded for replay purposes. I would now like in the conference over to Mr. Ryan McKenna, Director -- Strategic Planning and Investor Relations. Please proceed.

Good afternoon, everyone, and welcome to Air Lease Corporation's third-quarter 2011 earnings call. This is Ryan McKenna, Director of Strategic Planning and Investor Relations. I am joined this afternoon by Steve Hazy, our Chairman and Chief Executive Officer, John Plueger, our President and Chief Operating Officer, and Jim Clarke, our Chief Financial Officer.

Earlier today, we published our third-quarter results for fiscal year 2011. A copy of our earnings release is available on the Investor section of our website at www.airleasecorp.com. This conference call is being webcast and recorded today Thursday, November 10, 2011 and an audio replay will be available on our website.

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.

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, revenues, 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 speak only as of today, November 10, 2011.

These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our filings with the SEC for a more detailed description of the risk factors that may affect our results.

Air Lease Corporation assumes no obligation to update any forward-looking statements or information in light of new 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 exclude charges relating to discount 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 the reconciliation to corresponding GAAP measures can be found in the earnings release we issued today.

This release can be found in both the Investors and Press section of our website at www.airleasecorp.com. Unauthorized recording of this conference call is not permitted.

I would now like to turn the call over to our Chairman and Chief Executive Officer, Steve Hazy.

Thanks, Ryan. Good afternoon and thank you for joining us today. I'm pleased to report that for the three months ended on September 30, 2011, Air Lease Corporation recorded pretax income of $28.3 million and net income of $18.3 million, resulting in an $0.18 earnings per share on a diluted basis for the third quarter of 2011. Our cash flow from operations for this period was $83.1 million.

This is our sixth full quarter in business and now our third consecutive quarter of increasing profitability. Our Q3 results reflect a 160% increase in both pretax earnings and after-tax earnings compared with Q2 of 2011.

While cargo and freight market demand has been soft, the worldwide passenger sector of the airline business has held up very well despite macro economic uncertainty. As I stated during our last quarterly earnings call, and in our view, two industry fundamentals are playing out amidst this backdrop of macro economic uncertainty.

First, we believe that demand for new aircraft is outstripping supply and second, we believe that we have entered a period where global economic factors will drive most airlines toward leasing solutions in greater numbers. We have seen evidence of these drivers in the third quarter and anticipate that these trends will continue well into 2012.

We see high demand for new fuel-efficient aircraft as evidenced by the order book for Boeing, Airbus, Embraer ATR which are effectively sold out for the next several years. In addition, the sales campaign for the Airbus A320 Neo and the Boeing 737 MAX have further limited aircraft supply with unprecedented forward lead time on new orders.

In an environment where airlines are unable to obtain new aircraft on manufacturers now, and likely for many years to come, we believe that most airlines will look to us and our pipeline of new aircraft as an important source of lift. We do not see signs of airlines throttling back on their demand for new aircraft and Air Lease Corporation has established itself as one of the leaders in the aircraft industry with 233 new aircraft on order over the next decade.

Both Airbus and Boeing have responded to signals from the marketplace by increasing production. The manufacturers need to be diligent with their industry forecasting and react with prudent production decisions. We believe that the current production increases are an appropriate response to current demand but we remain watchful for signs of oversupply.

The challenges facing the European economy and all of their global trade partners has been widely reported. Constrained credit and widening spreads have had a direct impact on the airline's ability to finance aircraft purchases.

Long before these credit concerns intensified, we expanded our banking relationships in the Asia-Pacific region, thus fortifying our balance sheet and deepening the pools of capital to our disposal. For those airlines without current order streams we believe that the leasing solution has become even more attractive, given the increasing financing risk environment.

We believe that all these factors position ALC favorably for the foreseeable future.

Now John Plueger, our President and Chief Operating Officer, will discuss ALC's strategic positioning and what we see in our current operations. John?

Thank you, Steve. Look, the results from our operations this quarter confirm a shift from our start-up phase into our planned growth phase. In the third quarter, ALC was able to generate a pretax profit margin of 31% and cash flows of $83 million.

Additionally, we are pleased to announce that as of this earnings call, based on the number of aircraft we now have under contract, we will reach our target of building a portfolio of 100 aircraft by the end of 2011, with a current fleet as of this morning of 91 aircraft.

As Steve pointed out, we see demand for new aircraft exceeding supply. Accordingly, our forward lease placements are strong.

As of today, we are 100% placed for 2011, 100% placed for 2012, 71% placed for 2013, and 58% placed for 2014. Our ability to lease aircraft years ahead of their delivery serves as as an important risk mitigator for the Company. And beyond 2011, we don't foresee any single customer reaching 10% of total lease revenue, which is indicative of the diversity of our customer base.

Air Lease Corporation added 14 aircraft during the third quarter of 2011 and ended with 79 aircraft in our fleet with a weighted average age of 3.6 years spread across a diverse and balanced customer base of 49 airline in 30 countries with 35% of our fleet based in Europe, 30% based in Asia, 15% based in Central and South America, and 10% in the US and Canada and, finally, 9% in the Middle East and Africa.

Now looking at values of aircraft and lease rates, we see minimal effect on new current generation A320 and Boeing 737 values due to the forthcoming A320 Neo and 737 MAX. The installed bases of current A320s and Boeing 737-800 aircraft are large and with the continued demand for new current generation aircraft we are comfortable in the value outlook of our overall fleet going forward.

Let me offer two reminders. First, we receive our last delivery of the current generation of A320s in 2013, at which point we transition to the A321 with [chart lets] until our delivery stream of A320 and 321 Neos begin in 2016. Second, our focus is to derive the economic benefits of an aircraft for the first third of its useful life, and we believe that there is a reasonable secondary market for young used aircraft and that this market will continue. This strategy helps to insulate Air Lease Corporation from obsolescence risk as our fleet will remain young, due to the regular deliveries from our order pipeline.

We believe that ALC's current debt to equity ratio of less than 1 to 1 at September 30, 2011 combined with our liquidity metrics, including cash, available and undrawn secured and unsecured facility credit lines, an encumbered aircraft provide sufficient balance sheet strength to take advantage of opportunities yet positions us to manage our downside risk to credit markets and negative economic pressures.

With respect to the recent economic turmoil, particularly in Europe, credit markets have remained liquid for us and have improved our short-term borrowing costs thus far. While credit spreads have generally widened, the underlying interest rates have remained low. Based on statements from the Federal Reserve and European Central Bank, we expect interest rates to remain attractive over the next two years. And as market conditions above, we will continue to evaluate additional sources and forms of financing.

Now, on that note I will turn this over to Jim Clarke, our Chief Financial Officer.

Thank you, John. As Steve mentioned, our results marked ALC's third consecutive quarter of strong revenue and profit growth.

During the third quarter, our fleet generated $90.5 million in rental revenue which includes overhaul revenue of $3.3 million compared to rental revenue of $19.1 million which include overhauled revenue of $1.6 million in the third quarter of 2010. As a reminder, ALC adds aircraft throughout the quarter. Such that the full impact on rental revenue for aircraft acquired during any particular quarter will be reflected in subsequent periods.

Interest expense and appreciation increased year-over-year proportional to our higher debt balances and fleet growth. We recorded in the third quarter of 2011 SG&A expense of $11.5 million versus $7.9 million during the third quarter of 2010. Our SG&A expense is essentially flat quarter over quarter but still represents a disproportionately high percentage of revenues during our initial years of operation.

As we continue to add aircraft, we expect SG&A expense to continue decreasing as a percentage of our growing revenue.

Turning to our financings, as of September 30, 2011, ALC had built a diverse lending group consisting of 20 banks which provided lending facilities with an overall composite cost of funds of 3.09%, representing a further reduction from our composite rate of 3.29% in the second quarter of 2011.

This rate does not include the effects of upfront fees, undrawn fees or issuance cost amortization.

Our banking group includes four new institutions that were added during the quarter. During the third quarter of 2011, the Company added four unsecured term loans totaling $62.9 million and one unsecured revolving facility for $45 million.

As of quarter end, we had 13 unsecured evolving bilateral credit facilities totaling $358 million. Additionally, ALC entered into one secured term facility with recourse to the Company, aggregating $70.9 million at a rate of LIBOR plus 150 basis points. In connection with this facility we pledged $94.5 million in aircraft collateral.

ALC grew $31.3 million under our warehouse facility and incrementally pledged aircraft collateral totaling $36.8 million during the quarter. As of September 30, 2011, ALC had borrowed $740.5 million under the facility and had pledged 29 aircraft as collateral with a net book value of $1.[3] billion.

As John indicated, we continued to expand our banking group and sources of financing. Since September 30, 2011, ALC has added new bank facility totaling $116.3 million and we are pursuing additional opportunities in the banking sector as well as private and public debt capital markets as conditions warrant.

I'll now turn it back to Ryan.

That concludes management's remarks.

For the question-and-answer session each participant will be allowed one question and one follow-up. Now I would like to hand the call over to the operator. Operator?

(Operator Instructions). Greg Lewis from Credit Suisse.

Thank you and good afternoon. John, could you talk a little bit more about the financing situation? Clearly you guys have done a pretty good job of expanding your lending base. But as you think about the CAPEX requirements in 2012, when should we think about Air Lease going after and sort of locking up all the financing required for that?

Sure, thanks. And I would like Jim to comment as well, but I think the short answer, Greg, is that we are actually in a process as we hinted in our comments there, we are in a process now of aligning all of that up as we move forward on a global basis.

And so, that's just part of our ongoing normal business and we are comfortable with what we see so far. So I think the easiest way to say it is we are doing our jobs, and we are pursuing debt and capital market solutions that we think are making sense for us and in this marketplace.

As was commented earlier, we've expanded our banking groups in Asia; we have a lot of other banks that want to talk to us; and of course we are still pushing on emphasis towards unsecured debt as much as we possibly can in this financing environment. We will probably also be looking at secured debt solutions as well.

And specifically, we are looking now quite hard at the export credit agencies for similar Airbus deliveries next year. And then perhaps also followed by [pre] financing with Embraer and [Exitbank]. Those rates overall are still pretty attractive because we are grandfathered under the old pre-ASU rules for those financing.

So in today's market, those rates are attractive and we are taking a pretty hard look at those.

Great, and then just kind of staying on that theme, just giving Air Lease's available -- availability to sort of access capital, should we think about, as things sort of move forward over the next one to two years, I mean, should we think that Air Lease is going to be able to generate better returns on their assets simply because they are going to better access to capital? I mean, is that something where you are going to be able to get better returns on your capital that is deployed versus, say, the overall market and could you sort of quantify maybe what that could look like?

Well, in the third quarter as you see from our release, we achieved a 31% pretax profit margin on revenues. And most of that revenue is from leasing operations and most of the expense is from interest and depreciation. And as you are well aware, based on our current structure, we do not anticipate being a cash taxpayer. So, looking at pretax margin and pretax profit is a very important measure of our operational effectiveness.

As you saw, we reduced our average debt cost from 3.29% to 3.09%. We have average lease term remaining of close to 6.5 years on our fleet. So all of these metrics point toward a superior ability to translate our capabilities in buying and placing aircraft on very economical leases for us. Otherwise, we could have not achieved a 31% margin at such an early stage of our development.

So just but in thinking about -- I mean, so in other words, what --? It is a couple hundred basis points, is that sort of how we should think about it?

What do you mean a couple hundred basis points?

In other words if your like average cost of funding is around 3%. I mean is the market what --? Around 5 plus percent? 4%?

Well, if you look at the other public lessors and some of the nonpublic lessors that do publish information, you'll see that our average cost of funding including our unsecured revolvers, our unsecured term loans and our secured long-term fixed facilities is significantly lower than our competitors with the possible one exception of GE which, of course, funds their operation through the GE corporate treasury window.

So I think we have very competitive borrowing costs and our lease rates are, we believe, to be extremely attractive for us.

Yes and Greg, just as a matter, just a point as you know as we said before, we really don't give forward guidance on margins or our earnings.

Yes but I can comment on what we did in the third quarter and I think the results speak for themselves.

Thanks and we'll keep it to one question and one follow-up please.

Jason Arnold from RBC Capital.

Good afternoon and congratulations on the strong results in reaching your 100 deliveries this year. Just wanted to see if you could expand on a comment about share gain opportunities for lessors versus banks. And if this is something that kind of takes industry from 35% of the financing into the equation to maybe 40% market share, much more sooner or kind of how you expect things to play out?

Well, on a historical basis, the Western European banks, particularly in France, Germany and the UK, play a very, very significant role both in direct financing to airlines and also in the export credit agency underlying financings. We believe that a certain segment of that market is now obviously pulling back their ability to loan on a dollar-based transaction.

So we think there is a definite shift towards leasing which could, in fact, as you say, accelerate the percentage of aircraft lease to 40% sooner than we originally anticipated last year. We are seeing that trend.

Is it starting to really manifest would you say to a more meaningful degree? Is that a slow-motion process or maybe any thoughts on timeline on how that might work?

Those airlines that have already got committed financing for 2012 obviously have that in place. But those airlines that either don't have the aircraft or committed financing on airplanes they have coming, have to address this issue. And we are seeing more and more of those airlines particularly in Europe and some in Asia who, historically dependent on European banks for financing, are now reaching out toward the operating lease medium. And we are seeing that trend taking on greater momentum as the weeks have gone by in September, October, and early November.

Terrific, thank you very much for the color.

Michael Linenberg from Deutsche Bank.

Two questions here. Stephen, your introductory remarks you talked about evidence that you were seeing that suggested that a lot more share was going to be picked up by leasing companies for financing in the future, providing future needs of financing for fleets. You just talked about some of the shifts that we are seeing over in Europe.

Are there other sort of factors or can you provide maybe other bits of evidence that suggests that shift is picking up? For example are you saying a lot more high-quality credits looking to engage or finance using op -- by way of operating leases?

Let me just jump in here. I think the answer is yes. I mean, just in the last week to two weeks we have been approached by a major European airline to consider sale-leaseback financing on a wide body aircraft. Next week that airline has little as a month ago was not looking for those solutions. And we have gotten about I would say three to four of those queries from more, larger, primarily European-based carriers in the last couple of weeks.

Also as you know, the new export credit rules will take their toll on direct purchase financing because those aircraft that were not ordered before the grandfather period will face significantly higher costs of financing. And I think many of those airlines that would have used the old facility are now scratching their heads and saying, the new financing costs going forward and new guarantee fees are so exorbitant that on an MPV basis, leasing is becoming a much more attractive alternative.

Very interesting. And my second -- thank for that, my second question, a little bit of sort of inconsistency in the marketplace. On one hand, we have the Airbus and Boeing looking to push production rates up and we know that the demand is there. And it's as you indicated it is in excess of supply on one hand.

On the other hand, I know a few weeks back Airbus talked about that the increase in production rates could potentially be threatened by the fact that their supplier base could not get financing to fund the expansion of the supply chain.

And I'm just curious, is that -- should we view that as maybe a chink in the armor here or is it maybe just the market sending a message back to the manufacturers that they are probably moving ahead too aggressively on production rate increases? Just your thoughts on that.

Yes. That's actually -- I'm glad you brought that up, that is an issue. And we do believe that that is a potential constraint that production rate increases of this magnitude does bring.

Now Boeing has not made those comments yet and I haven't heard that from Boeing, but it is something that that we've thought about and which is another reason for us to believe that, okay, well look if perhaps this magnitude cannot be achieved or has been muted somewhat, all of the fundamentals which we just outlined for you are sort of amped up even more so. It's just a fundamental perpetuation of assorted supply in new aircraft.

I mean, I can give you some examples. Titanium forgings, galleys, [seats, in flight entertainment] equipment. Some of these suppliers are already running at virtually 100% capacity. And the lead times are longer than I have ever seen in my 40 years of experience. So we do see pockets of situations where key suppliers are so constrained that they really cannot sustain a higher production rate level at Boeing Airbus.

So we are reaching that point now where critical suppliers under their current production schemes cannot meet further upping of production rates.

Gary Liebowitz from Wells Fargo Securities.

Thank you and good afternoon. Steve, I noticed that some of your -- a couple of your more recent acquisitions have been nine- , 10-year-old aircraft. Are you finding better risk-adjusted returns in the slightly older aircraft or were they sort of one-off type events and you are going to stick more to the order

Okay, let me answer that. We have acquired a very small number of aircraft in that profile as part of packages that we have acquired from a few other lessors. And what we did essentially is cherry pick from a menu that those lessors gave us and we picked aircraft that had the highest lease rate profile, a very, very attractive acquisition cost, and also gave us an airplane that we felt still had good market potential for many years to come.

But it is on a very limited basis. And what you'll see is that, going forward, virtually all of our acquisitions except for three aircraft in the fourth quarter are brand-new airplanes. This activity of purchasing airplanes from other lessors has virtually come to an end now with perhaps very few exceptions in the future.

So, these aircraft that you are referring to are parts of larger package transactions of all the younger aircraft as well.

Thanks and a follow-up for John. Given what you said about your forecast for interest rates are we to conclude that there's no intention on hedging out your interest rate exposure?

Yes. As a policy matter, we don't look to hedging instruments. In fact our interest rate managing policy simply calls for us to take on more fixed-rate debt over time. I think we have in several public forums stated that ultimately our goal is to get towards a 70% fixed-30% floating combination.

That is probably out there sometime early 2014. But we are migrating our way there. I think I would point out that we are some approximately 23% fixed as of the end of September. Whereas at the end of last year, December, 31, 2010, we were virtually 0% fixed. So we are migrating that way. We don't like derivative instruments, we don't like hedge accounting, we don't like their volatility.

So our current plans are not to hedge but simply to add debt as we do so more on a fixed rate basis.

Thank you very much.

I just want to add to John's comment that a number of our loan facilities on long-term loans that are currently floating rate, we have the capability on very short notice to fix all or a portion of those debt maturities to fixed rates without hedging. This is directly with the lender. So we do have that in our toolbox.

If we begin to see any early trends for interest rate increases. We haven't seen any.

Yes and we are obviously watching for those trans interest rate increases, so we are keeping a watchful eye.

Scott Valentin from FBR.

Good afternoon and thanks for taking my question. Just with regard to the unsecured -- issuance of unsecured debt in your discussion with the rating agencies and maybe internal planning, is there any timing on when you may secure a rating?

No. Scott, we are working that and we have been coordinating and having various discussions informally with the rating agencies. And it is really tough for us to put a timetable on that at that point in time. I think in a nutshell I would only say that I think they are happy with our progress. But we are -- in this case, time actually is our friend here because even though we are, I think, achieving respectable and good results, the fact of the matter is we have only been in business since March of 2010.

And so, I think it is safe to say that most agencies would like to see at least a full year's worth of -- a full year's 10-K and a little bit more seasoning and those are the clues that we are getting.

But obviously as a management team we are running the Company and we have communicated this to the agencies. We are running the Company as it already were an investment grade quality company. And everything we are doing is in that direction.

Thank you and then just a follow-up question. Maybe just a little bit earlier, but just wondering there seems to be a lot of opportunities out there for portfolio acquisition and just wondering if you are seeing that -- the opportunities, a number of opportunities increase and I know you mentioned you were going to move more towards new deliveries going forward.

But are the opportunities that compelling now where you take advantage of them? Or is there too much competition out there still for some of the newer aircraft?

We have already looked at several large packages and the Board has been very engaged in reviewing that with us. Next year, we have currently an order book for 45 new aircraft all of which are placed. To the extent we find compelling opportunities that will further improve our financial performance and our asset profile. We are certainly going to take a very close look at those.

And I think that is just something we do on a regular basis. We review all good business opportunities. But I really can't comment on unannounced possibilities that may be in the future.

Thank you very much.

Jason Arnold from RBC Capital.

I'm back again. Scott got that question, but just one other quick follow-up. See if you guys have any insight on why Chinese Eastern swapped into the 37s from the 787 and just curious if you have any thoughts on indication that other carriers might do the same?

Yes, I was just out there a few weeks ago in China, visited with all the three major airlines. The original contract between Boeing and China, China Southern and China Eastern called for delivery of the first 787 right before the Beijing Olympics. And these airlines did a lot of planning, strategic planning and route network development planning, which assumed that the 787 would be introduced in 2008, 2009.

This did not occur and as a consequence, all three of these airlines acquired incremental A330 200s, A330 300s and in some cases in the case of Air China additional 777s to offset the non-availability of the 787.

In the case of China Eastern, because they were able to get sufficient number of A330 200s and 300s that are doing the work of what the original 787s intended to do, the 787s coming in the future would have been redundant. So the airline said, where do we need lift? And the 737 800s became a more meaningful solution to their fleet growth.

And we've seen evidence of this with a number of other carriers in China. For example, Air China, we leased them to A330 200s that originally should have been 787s. So a lot of this is because of Boeing's inability to deliver the aircraft in a timescale that were originally contracted for.

Terrific, thanks for the color.

Mark Streeter from J.P. Morgan.

Gentleman, good afternoon. Last quarter I asked you about Boeing's decision to go with the MAX rather than cleansheet a narrow body aircraft and you had mentioned that you were talking to them and studying it and so forth. And since then they have come out with a 68-inch fan diameter decision on the engine.

I'm just wondering if you have any updated thoughts on that program and the potential fit in your portfolio.

Sure. Essentially we don't have that much of a change since the last time. We are obviously aware of the 68-inch fan decision. We are working closely with Boeing, but you know new programs, there are so many different variabilities. We are -- frankly we are anxious to see what pricing information will be. We really don't have definitive indication on that and I would call it a minor detail.

The performance, we have general claims of Boeing claiming it's 16% better than the current A320, 4% better than the proposed A320 MAX, but those are very general numbers, and we look for very specific airline performance guarantees on a case-by-case basis. And all of these things are still evolving.

So our dialogue remains accurate and robust, but we simply can't -- we've not been able to reach any conclusion yet.

Great and then just one follow-up. So that the elephant in the room is the fact that your public peers are trading below their book value. One of your large competitors in the private market and I'm sure you are very familiar with, just took a very large write-down and is taking several write-downs on aircraft.

And I am just wondering it gets into some of your earlier comments about actively managing the portfolio and so forth. And I guess it sounds -- if you could maybe expound on that a little bit more in your commitment to actively manage the portfolio, sell aircraft at the end of that one third of their economic life as you mentioned. Just trying to get a sense for under what circumstances will you keep aircraft beyond one third of their economic life? And how are you thinking about residual values and so forth?

Yes. We are really not doing anything differently than what we have set forth. Obviously, we are very much in a growth phase and so that at least in these early years '11, '12 -- '10, '11, '12, probably in the '13, we are probably not looking at a whole lot of aircraft sales from our portfolio.

Having said that, it is our philosophy to enjoy an aircraft during about the first third. We have no hard driver on that. One of the luxuries of being a very strong company and having a strong balance sheet is you never want to be -- have to situate where you have to sell. Unfortunately, many airlines have found themselves in that situation during down economic periods.

The beauty of leasing is that you can continue to lease for as long as you feel that it is appropriate. We have a lot of new aircraft coming and those metrics, those numbers alone will keep our fleet young.

Now having said that, we will always look at the opportunity if we see it to sell an aircraft or two if the gain that we can achieve on that sale will meet or exceed otherwise the income margin we would enjoy on aircraft for the remainder of its lease life where we currently have it.

So it's a judgment question. You should not be expecting to see significant sales from our fleet. We are not even at 100 airplanes yet.

But we are mindful of these considerations, Mark, and it's something that we managed in our prior company on the time and different times. We are mindful of it. We will not hesitate to take advantage of the opportunity on the sellside should we find it.

But the advantage of our overall fleet being 3.6 years, there's just not a lot of pressure on us for that. We don't -- we picked, I think most importantly and most fundamentally, and perhaps there's a big differentiator between other companies that you are referring to -- we very much picked our fleet and we picked the aircraft types exactly based upon what was most immune from those kinds of problems. And the most wise distributed, etc., etc.

And all of this is part of our overall strategy to minimize for obsolescence risk or [to the value] risk.

And furthermore, I mean we are very hands-on in the aircraft lease asset management side. Very, very hands-on. We take less of a financial approach and more of an airline relationship approach where we really keep close tabs on our customer, what their needs are, what aircraft requirements are and you will not find another lessor that is so hands-on in terms of the asset management side of the business.

Thank you.

Scott Valentin from FBR.

Scott Valentin Thanks for taking my follow-up question. Just two questions. One, some of the conference calls on some of the other lessors, they talked about some weakness in lease rates for A319, 737s, 700s, maybe some of the older A320s. And was curious wonder if you are seeing that?

And two, do you think it's more of a fluid kind of situation where it is a timing issue? Or are those smaller narrow bodies -- are they structurally not as adequate as some of the newer aircraft?

Well, let me point out that the initial version of the A320 came out at the end of the 1980s. And there's quite a few A320s which we consider to be the first generation A320s that are more than 16, 17 years old. So when these aircraft reach 50,000, 60,000 flight hours we have seen lease rates soften on those older aircraft.

We do not have any of the early serial number AC-20s.

On the 737 side, the 737, 700 came out in 1998. So again you are looking at an airplane that's now in service for 13 years. We don't have any of the early versions. We have not seen any lease degradation on the young 700s and 800s and we don't have any four-engine aircraft like A340s and 747s.

So ALC is completely immune from the negative trends on the four engine side. Which of course are very vulnerable to oil price increases.

Just a follow-up. Again, what is going on in Europe and for all for leasing industry in general, Europe has been a big portion of the portfolio. Are you making any conscientious shifts in the way you approach geographic diversification of the portfolio? Or is it more just on a client by client basis?

Well, I think we have to make a distinction between the European airlines and the European financial sector. The European airlines as a whole have not done poorly. In fact, many of our European customers are doing quite well and are going through a fleet modernization period.

But you are seeing a shift in percentages of our total aircraft being reduced in Europe and moving more towards Asia and other parts of the world. Europe is still the area that has the largest number of airlines, so it is the right marketplace for aircraft leasing. But in the case of Air Lease, you will see Europe lose market share in our overall portfolio.

And you'll see Asia probably overtake Europe some time in 2012. It has the largest single overall market for ALC aircraft.

Thanks very much.

Mark Streeter from J.P. Morgan.

Just one quick question for me. You have already discussed some of the portfolio opportunities out there. I know you can't get into specifics, but I'm just wondering because of the condition and the financing markets, are you seeing fewer parties at the table for some of these deals where you may have been bidding, and six months ago there were three or four active bidders and now there might only be one or two? I am just wondering if it is easier pickings for you out there?

The short answer is yes. We are seeing fewer players.

Thanks, that's what I was wondering.

And Mark, also that lack of financing for a lot of these transactions is also applicable to certain airlines and that's the driver toward more leasing. So it's really the same basic phenomena. The supply of money to finance aircraft from traditional lenders has shrunk which means that lessors as a group will take a larger market share.

Well I guess it is a good time to have some dry powder and some under leverage on your ballot sheet. So we can't wait to see what you do with it. Thank you.

At this time I'm showing there are no further questions in queue. I would like to turn it back to management for any closer remarks.

That concludes our call for today. Thank you for your participation. Have a good evening.

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