Air Lease Corp (AL) 2011 Q4 法說會逐字稿

Good day ladies and gentlemen. Welcome to the fourth 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 to turn the conference over to Mr. Ryan McKenna, Director of Strategic Planning and Investor Relations. Please proceed.

Good afternoon everyone, and welcome to Air Lease Corporation's fourth-quarter 2011 earnings call. This is Ryan McKenna, Assistant Vice President 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; and Greg Willis, our Senior Vice President and Chief Financial Officer.

On Friday, March 9, 2012 we published our fourth-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 Monday, March 12, 2012 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, March 12, 2012. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our filings with the Securities and Exchange Commission 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 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 the reconciliation to corresponding GAAP measures can be found in the earnings release we issued on March 9. 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 like to turn the call over to Chairman and Chief Executive Officer, Steve Hazy.

Thanks Ryan. Good afternoon to all of you and thank you for joining us today. I'm pleased to report that for the three months ended December 31, 2011, Air Lease Corporation recorded pretax income of $38.7 million and net income of $24.8 million, resulting in a $0.24 earnings per share on a fully diluted basis. Our cash flow from operations was $101 million. Our Q4 results reflect a 37% increase in pretax earnings compared with Q3 of 2011.

This is our sixth full quarter in business, and now our fourth consecutive quarter of increasing profitability. For the full-year 2011, we achieved pretax income of $82.8 million and net income of $53.2 million on total revenues of $336.7 million earning us a pre-tax profit margin for the year of 24.6% and a fully diluted earnings per share of $0.59.

I am pleased with our results, and even more proud of our dedicated team of Management and employee shareholders, all of whom are consumed with a passion for the business. It is the in depth knowledge of our customers' requirements and the needs of the industry coupled with the entrepreneurial culture, the spark of a youthful Company, and the unbridled enthusiasm of its people, the commitment to deliver superior results to our investors and our customers, and the unwavering belief in our business that formed the core of ALC's success.

Please allow me to make a few industry observations. As most of you know, 2011 and early 2012 brought unprecedented orders for new aircraft as fuel price remains the biggest cost threat to airline prosperity and environmental pressures continue to grow larger. The airline industry needs fuel-efficient, environmentally friendly and technologically advanced aircraft. ALC is well-positioned to meet these needs with aircraft that reflect these characteristics, namely, 102 aircraft in our current fleet and 217 new aircraft on order at December 31, 2011.

At the same time, much noise has been made about the airframe manufacturers' record increases in production rates and the potential negative impact of this increase might have on the global aircraft supply and demand equation in the face of softening economic conditions, airline profitability, particularly in some regions of the world such as Europe. While we anticipate that regional economic factors and reduced airline financial performance may have some negative impact on the order books of the airframe manufacturers, they remain significantly oversold compared to their production capabilities.

The overall supply of new aircraft available to the marketplace for the next several years from the manufacturers remains limited helping to make ALC an attractive leasing solution for airlines looking to procure the new aircraft they need to optimize their fleets, maximize their flexibility, and reduce their own financing risks.

[Ago volatility is nothing new in the airline industry.] Our team has managed through many cycles and industry conditions, including aircraft oversupply and undersupply, high interest rates, airline bankruptcies, catastrophic events, pandemic outbreaks, and more. Yet, air transportation has become and in our view will remain the world's form of long-distance mass transportation and an important engine of global commerce.

We believe ALC's fleet, aircraft strategy, and long-term order book strikes the right balance between growth and conservatism. Moreover, our low leverage balance sheet positions us well to take advantage of opportunities that may present themselves in the marketplace. We strongly believe that by executing our growth plan, ALC has achieved impressive financial results in its short operating history and is well-positioned for the future.

John Plueger, our President and Chief Operating Officer, will now discuss ALC's current operations and strategic positioning.

Thanks Steve.

Air Lease Corporation added 23 aircraft, growing our fleet by 29% during the fourth quarter of 2011. We ended the year with 102 aircraft in our fleet with a weighted average age of 3.6 years and with a weighted average remaining lease term of 6.6 years. Based on net book value, over 90% of our aircraft are operated internationally. We ended the year with a balanced customer base of 55 airlines in 33 countries which is indicative of the diversity and depth of our customer base.

Much attention has been focused on Europe, in the media and industry press. ALC has no significant concerns about our European customers to date. All are performing well with no significant lease arrearages. We do have one A320 leased to Kingfisher Airlines in India with minor arrears. We are monitoring that situation closely, but we believe our team on the ground in India has a good grip over the situation.

Our forward leased placements of new aircraft on order our strong. As of December 31, we were 93% placed through 2014 and 80% placed through 2015. Our marketing team's ability to place aircraft years ahead of their delivery serves as an important risk mitigator for the Company. We continue to see strong demand from Asia, where during 2011, we concluded a significant portion of new aircraft lease placements from our order book. Demand for our Twin Arrow wide body aircraft remains strong, with that demand again coming primarily from Asia.

As you are aware, ALC's philosophy is to offer the youngest, most fuel-efficient, most environmentally friendly, and most technologically advanced aircraft available. Implementing that philosophy, it should come as no surprise to you that we have been successful in placing such aircraft. For instance, we have leased out 100% of our remaining orders for current generation Airbus A320 aircraft or as my friend John Lahey likes to call them, the A320 CEO for current engine option as opposed to the NEO for new engine option.

As Airbus likes to point out, since the A320 NEO was introduced, Airbus has sold 448 of the A320 CEOs. We take delivery of our last A320 CEO in 2013. Additionally, 100% of our Embraer E-jets orders are now fully placed. We've leased out 100% of all of our remaining new Airbus A330 positions. And finally, we see good demand for our Boeing 777 300ER positions.

As previously disclosed on prior earnings calls, on a total portfolio basis, we have been able to consistently maintain our overall lease rate margins and that remained true through the fourth quarter of 2011. Operationally, ALC has all major key systems and controls in place and functioning well.

One of these aspects is succession planning. And ALC has in place succession planning across the organization. The effectiveness of that planning was evidenced last week when Jim Clarke, our Senior Vice President and Chief Financial Officer, decided to leave our Company to pursue other interests. Jim's resignation was not due to any disagreement with the Company on any matter related to the Company's financial condition or financial reporting. We thank Jim for his contributions to ALC and we wish him well in his future endeavors.

Our succession plan was executed, and in line with that plan and Management's recommendations, our Board of Directors confirmed and appointed Greg Willis, our Vice President and Chief Accounting Officer, as our new Senior Vice President and Chief Financial Officer. Greg was one of the first to join Air Lease Corporation at its formation. He has demonstrated tremendous strength, professionalism, insight, business and finance acumen, and depth in the accounting and financial management of our Company from day one. Under Greg's leadership, we didn't miss a beat getting out our 10-K ahead of schedule.

With that, let me turn the financial review over to Greg.

Thank you John. As Steve mentioned, this release marks ALC's fourth consecutive quarter of increasing profitability. During the fourth quarter, our fleet generated $113.6 million in rental revenue which includes overhaul revenue of $3.4 million compared to rental revenue of $36.7 million which includes overhaul revenue of $1.8 million in the fourth quarter 2010.

As a reminder, ALC adds aircraft throughout the quarter so the full impact of rental revenue for aircraft required during the quarter will be reflected in subsequent periods.

Interest expense and depreciation expense increased year-over-year proportional to our higher debt balances and fleet growth. We recorded in the fourth quarter of 2011 SG&A expenses of $11.9 million versus $10.1 million during the fourth quarter of 2010. Our SG&A expense was essentially flat quarter-over-quarter but still represents a disproportionately high percentage of our revenues during our initial years of operation.

As we continue to add aircraft we expect SG&A to continue decreasing as a percentage of our growing revenue. Despite industry concerns over availability of financing for our airlines, ALC continues to enjoy good access to credit and debt capital markets. We concluded our first convertible bond transaction in November, and those bonds have performed well in the secondary market. We continue to emphasize the growth of our unsecured financings.

As of December 31, 2011, ALC built a diverse lending group consisting of 23 banks providing lending facilities. This banking group includes three new institutions that were added during the period. Our banking facilities continue combined with our unsecured debt private placement in June and our unsecured seven-year convertible bond issued in November resulted in an overall composite cost of funds of 3.14%. This rate does not include the effects of upfront fees, undrawn fees, or issuance cost amortization.

During 2011, the Company raised a total of $1.2 billion in debt financing, of which $587.6 million or 49% was unsecured. In the first quarter of 2012, ALC entered into debt facilities and obtained financing commitments for an additional $855 million of which $522 million or 61% was unsecured across eight facilities. 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'd like to hand the call over to the operator. Operator?

(Operator Instructions) John Godyn, Morgan Stanley.

Great, thanks for taking my question. It's great to see that you guys made further progress on placing aircraft this quarter. Just given that we've heard reports of softening trends out there, there's a little bit of a concern in the marketplace that maybe your placing of new aircraft might be with marginally worse economics or lower returns than maybe what you've been able to place over the prior few months. Can you guys just please speak to, how you think about the hurdle rates and the return profile on these placements that you have out multiple years in the future?

Yes, thank you for your question. We have not seen any material change in our lease rate profile on our new aircraft placements in the fourth quarter versus the third quarter or the second quarter of 2011. The lease rates on our highly desirable aircraft types that we have leased out well in advance of their deliveries have remained fairly consistent among a broad group of lessees.

Okay great, thanks, and just a follow-up. Just on this idea that there might be some softening in the marketplace. Can you just speak to your appetite for any opportunistic asset acquisitions? What might those look like, what are the characteristics that seem interesting, if you do have an appetite for anything opportunistic?

John Plueger will answer that.

Hi, thanks. We're always -- our Management team, by our DNA, we are always looking for those kinds of transactions. We continue to evaluate any opportunities that come up. Obviously, we look at what anyone would look at. We looked at the attractiveness of the pricing, of any assets we might want to buy. We look at all kinds of different aspects, all with the goal of really fitting our business model and enhancing our shareholder value. It's hard for me to lay out the specific characteristics that -- we don't have a checklist of 1 through 10 items we have to have. But suffice it to say that we have in the past, since we began this Company, and continue to evaluate each transaction. They all are very different, and anything that we believe is worthwhile pursuing, we will pursue.

Great, thanks a lot guys.

Sure.

Jamie Baker, JPMorgan.

Good afternoon gentlemen. First question, a follow-up you brought up the issue of Kingfisher in your prepared remarks. What are some of the options there? Can you proactively take that plane out of service early?

The current situation is fairly straightforward. Kingfisher is not in financial default under the lease. They have been making their lease payments. We are taking steps in case the airline has to further curtail their operations, to recover the asset and lease it to another airline. We only have one A320 there. We have very strong security deposits, and we also have an additional letter of credit from a major international bank. We have overhaul reserves that we have been collecting now for about two years which have significant balances. So, I think from a credit risk profile, ALC is quite well positioned. We have identified several airline customers who would like to have that airplane, and negotiations are underway on a subject 2 basis depending on our ability to recover the aircraft or desire to do so in the near future.

Okay. Is the aircraft in operation currently, do you know?

Yes.

Yes the aircraft is in scheduled operations.

Okay.

So, it is airworthy and if there is a possible shutdown of the airline or some kind of paralysis of airline operations at Kingfisher, we have contingency plans to recover the assets.

Great. I'm sorry go ahead?

Stick to one question and one follow-up for everybody so everybody has a chance. Next question operator.

Greg Lewis, Credit Suisse.

Hi everyone, it's actually Anthony Sibilia for Greg today. I just have another follow up question on the forward lease placements. In the K it talked about how some of those lease placements are binding versus some are -- as being nonbinding. I just wanted to know, do all of them have lease rates currently attached to them? Then I guess, what would you guys say is the likelihood of those lease rates that are currently potentially in place being maintained over the next few years?

Right, let me explain the marketing of aircraft on lease is a multi step process. The first point where we consider a transaction serious is where the airline signs a binding letter of intent accompanied by a non refundable cash deposit.

Okay.

In all cases, since the Company has started operations in early 2010, we have converted those letters of intent to firm leases. At December 31, we had a few aircraft which were in transition between the LOI and the final lease documentation phase. But the lease rates as you refer to are identified and agreed to by the parties, including the lessee and lessor prior to that. We don't expect as the leases are signed that there is a change to the actual lease rates or the lease economics.

Okay. Then I guess just one other question. This year, it looked like you guys had $11 million of contingent rent, or maintenance rent. Do you guys give any guidance for next year about what that figure would be like?

Greg Willis, our CFO, will respond to that.

Sure.

Although you have to understand we don't give forward guidance on revenues or profits.

That's exactly right, Steve, we don't give forward guidance but that contingent rental revenue is the revenue portion that we, in accordance with our accounting policies, recognize as we receive the overall reserve payments.

So it is what you recognize as you receive or what you think you will --

What we think we will retain.

Okay.

Of the cash that we have received already.

Okay.

As the fleet grows.

It should just grow.

You can make some assumptions about the fact that the more airplanes we have, the greater the number of flying hours that the airlines will operate those aircraft. So, you can make your own calculations on a pro forma basis.

Great, thank you.

Thank you.

Michael Linenberg, Deutsche Bank.

Good afternoon guys. Two questions. Can you give us just your thoughts on the recent United deal? The debt deal that was done. It looked like it was pretty well received in the market. It was the first deal with 787s, I know those are airplanes that you guys have on order. Just your thoughts and any read through from that?

Yes, actually we were pleased to see that. Anything that maintains and provides liquidity overall to the industry, particularly this has been a feature that the US airlines have been able to enjoy in the past with AATCs and et cetera. But we believe that there is huge capital requirements globally for this industry going forward. So, we actually were quite happy to see Continental United get this transaction for the 787s. There's lots of speculations if you read those articles, that this is a transaction that could be used more broadly on a global basis. We think that'd be great.

Okay, very good. Then just my second question, if we push the Kingfisher situation aside, how do you see the credit quality of your overall customer base? Would you say that today it is similar to how things looked a quarter or two ago or has it maybe deteriorated just modestly?

I would say it is better. Every week we look at the tally sheets on all the rentals and if anybody is a couple of days late, and actually the last report I saw was the best I've seen in the last year. We are not really seeing any degradation of cash inflows from our lessees. All of our lessees are performing and as I said earlier, even Kingfisher is up to date on their lease payments on that one AC20.

Let me just add that we don't just place aircraft for today. All of our placements we look at with a long-term forward view, because some of these leases go out 10, 11, 12 years. So we make pretty good judgments and a good balance I think overall on who we lease to. In the overall quality of our portfolio obviously there are some airlines that are more hallmark names, bigger flag carrier types and others that are smaller that might yield a better overall yield to us. It's the balance overall I think that we look at before we do any placements at all. So we very much, a part of our analysis is to look forward 10 or 12 years and make our bets as to who is going to be around, who is going to be stable, and who do we want to have aircraft on lease to.

Okay, very helpful, thanks guys.

Thanks Mike.

Scott Valentin, FBR Capital Markets.

Good afternoon, thanks for taking my question. With regard to financing, obviously you guys aren't having any problems accessing financing given the $855 million in the first quarter. But maybe, conditions seem to be changing. Are terms tightening or are you seeing different players come into the market?

In terms of lenders, or institutional investors, or banks?

Yes, I'm sorry, banks and lenders who you're seeing come in and if it's different regions coming in now.

One of the things we did about a year ago is we embarked on a plan to expand the geographic scope of our banking relationships. We put a lot of emphasis on banks in the Asia-Pacific region, and not depend as much on the European banks. Notwithstanding that, we have seen strong support from our European lenders. In fact, in the fourth quarter, we did a number of transactions with European banks contrary to the media portraying that European banks are not in dollar-based lending.

But we have also expanded our lending relationships to Japanese institutions, two big Australian banks, the largest bank in Southeast Asia, and many of these institutions -- or most of them have actually provided us unsecured facilities of various sorts. So, we continue to expand those banking relationships, and we are not overly reliant on any one region of bankers in terms of geography.

Okay that is helpful and just one follow-up. You mentioned the 45 aircraft scheduled for delivery in '12 are all placed. I think I saw in the K, there's 13 aircraft with lease expirations. Are those placed as well or do you have any update on those 13 aircraft?

We will publish that in our first-quarter 10-Q. But as you can imagine, airlines generally give us between 9 and 12 months advance notice before the lease expiration. Our team is diligently working, and have been very successful at either extending leases or releasing aircraft. We don't have any aircraft on the ground at this time, nor do we plan to have any on the ground.

Okay, thank you.

Jason Arnold, RBC Capital Markets.

Hi, good afternoon guys. Just a quick follow-up actually on that one Scott asked on the new financing facilities here in the first quarter that were added. Could you give us the rates on those, and perhaps the advance rates?

Yes, go ahead, Greg

Jason, we haven't disclosed those rates we've disclosed in the aggregate. We also disclose ranges in our 10-K by financing type of the deals that we are doing. But that's -- right now we have to stick to what's been disclosed in the 10-K.

Okay. A follow-up I guess question here, now that the Dreamliner is less dream and more reality, I was just wondering if you could talk about where you see that aircraft fitting into your fleet and perhaps the market more broadly.

Thanks Jason, this is John Plueger. As you know we have already ordered four 787-9s and have disclosed that. That comes a little bit later in the decade. We continue to believe that the 787-9 is the aircraft that is more strongly preferred by the industry. I think that's become pretty clear.

Look, and the 787-8 is in the process of delivery. Obviously there have been some hiccups, some issues, some work that's had to be done in aircraft and it's well known Boeing has to do a lot of work on some current production aircraft to find some things that they're finding in the typical early teething pains of an aircraft. We continue to watch the program, but one good thing about having the 787-9 later in this decade is that any and all of these teething issues that have come out all ought to be cured.

Terrific, thanks a lot for the color.

Sure.

Isaac Husseini, Barclays Capital.

Hi. Good afternoon everyone. Wanted to get your thoughts on ROEs if possible. In a hypothetical world where lease rates and asset values could come under pressure, just wanted to understand what your thought process is as it relates to leverage that you could potentially pull to maintain certain ROEs.

Well, in our IPO filing, if you refer to our S-1 filings, we said that our target leverage will be lower than, historically, what other lessors have been done. Our long-term philosophy is to have a target leverage in the range of between 2 to 1 and up to 2.5 to 1. At the end of 2011, our leverage was still in the 1 to 1 range. As we add more aircraft and do more financing, that leverage will obviously begin to creep toward the target levels that we have outlined in our public filings. As that happens, the ROE should increase, because we are deploying our capital in a more efficient manner. But this is a process that will take 18 to 24 months or possibly even longer to get up to that level.

The target was 2.5?

I said between 2 and 2.5.

Right. Okay.

There could be seasonal variations in that depending on timing of aircraft deliveries and dispositions. But keep in mind also that the retained earnings of the Company are added back to our equity base, our shareholders equity. Whenever you look at those calculations between debt and equity, you have to think about the fact that the equity is growing as a result of the retained earnings.

Okay. That is helpful. My follow-up question is, if you could just give us some color on the demand that you are seeing within different regions. I understand that when you went public, you wanted to focus on building your exposure in Asia and -- given that this is where the demand was. Where do you see yourself right now relative to where you want to be in those regions? If you can give any color on other regions as well.

Hi, it's John Plueger. In my remarks I mentioned that we continue to see strong demand in Asia, and in fact in 2007 a significant percentage of our placements of new aircraft for future delivery are all based in Asia. There really is no difference at all from what we had told, and anticipated, and disclosed in our -- in the formation of our Company and the initial private equity raise, in the IPO and subsequent. We still see, as I indicated in my remarks, strong demand from Asia. It is demand deriving wide body, single body, et cetera, et cetera. We still see that as the primary region that will fuel our continued growth in our aircraft lease placements.

We do have strong activity in Latin America, we have quite a few deliveries this year in the Latin America region ranging from Mexico down to Brazil and so on. Middle East and Africa are still growing above what I call the North American level of traffic growth. We see other opportunities in the region here, even in the US and Canada. In Europe, most of our lease placements are really modernizing fleets. They are replacement aircraft rather than additions to capacity. But we still see a very robust demand, even from Europe, in that arena where it's a replacement aircraft of a less efficient, more obsolete airplane by the airline.

Okay, thank you so much. That was very helpful. Thanks.

Sure.

Helane Becker, Dahlman Rose.

Thank you very much operator. Thanks guys for taking my question. Just one. Do have an opportunity or are there opportunities for you to increase the 2013 delivery schedule where the decline from this year seems to be pretty substantial?

Yes. The answer is yes, there's always opportunities. We continue as one of the other earlier questions and answers might provide, we're always on the lookout for opportunistic transactions from any source, from the manufacturers, from other leasing companies, from airlines, et cetera. We have simply set forth in our 10-K and our disclosures now what the current status of our new aircraft orders are. There could be situations that come up where we may step into orders that another airline wants to vacate, that it could be a variety of different things. It's really hard to say when and where and how. But I think the overall answer to your question is yes, it is certainly possible for us to increase our orders for 2013.

Yes, what's contained on page 34 of our 10-K is our current orders and we would refer to that as our base plan. Then in addition to our base plan we would obviously look at transactions that fit into our portfolio planning, expanding our customer base, geographic diversification, as long as its aircraft types that we feel will be a strong candidate for our long-term operations.

Okay. Great. That's what I was wondering. If we should think about page 34 as the base case. And you answered that. Thank you.

As of December 31, that's what we have on firm order. We can't really make specific observations on what airplanes we're going to buy three months from now, six months from now, that we will deliver in 2013.

Right.

Obviously, we are growing the Company and the probability is that we will add units to that rather than go down. So it is the base case and you should look at that way. Thank you.

All right. Great, that's very helpful, thank you very much.

Gary Liebowitz, Wells Fargo Securities.

Thank you operator, good afternoon gentlemen.

Hi Gary.

The 10-K mentions that your targeted average lease duration for new narrow bodies of six years and in prior filings you used to talk about a minimum lease term of six years for new narrow bodies. Can you talk about what has changed about your strategy with respect to how far you go out?

I don't see where it says that in our 10-K. I think what it says in the 10-K is our average lease remaining on the entire portfolio is in the vicinity of six and a fraction years. We generally do leases on new aircraft for longer periods than that.

I am reading directly from the K, so we can follow-up on that after. Also in the 10-K if I compare your purchase commitments, your aircraft purchase commitments at year-end versus September 30, it looks like there weren't any changes in the number of units. But your dollar purchase commitments went up in 2012 by about $80 million. What would cause that to change without any change in the unit delivery schedule?

Are you referring to -- what section of the 10-K are you referring to Gary?

It's the purchase commitments for new aircraft, where it is now $1.93 billion for 2012. That is up about $80 million or so from what was disclosed in the September Q, but there weren't any corresponding changes in the unit deliveries. I'm wondering, were there any -- did you trade up from A320s to A321s or anything along those lines?

Yes, we have committed as a part of our -- some of our aircraft lease placements as we did in 2011, we have committed to purchase a few used aircraft going forward. I think that that's what -- that's what this is referring to. The total amount of -- I think you said some $80 million, the total amount there is not that significant for us. But again, as we have done in the past, as we did in 2011, if we find some opportunities, we are going to act upon them and those are primarily associated with placement of significant quantities of new aircraft.

We also converted two of our A330-200 orders into A330-300s due to customer demand, so those have a slightly higher capital cost.

Thanks.

Thanks Gary.

Thank you.

Arren Cyganovich, Evercore.

Thank you. This is not particularly an issue for you at the moment, but the ILFC write-downs that we saw last year and in their 10-K they talked about some stress tests that could cause potential write-downs of their existing fleet. I am just curious what your thoughts are on the residual value risk particularly with the A320s that would be last off the line, the COs and maybe the 737-800s.

I think as far as ILFC write-downs you should refer to their own filings. My recollection is they made a publication that 28% of their fleet is more than 12 years old. So we don't have aircraft that fall into that category.

I guess I was more thinking about in terms of the risk that you would have for your orders that you have, I know you're 100% placed on the COs.

We placed all of our A320s on long-term leases. Most of the recent leases we have done on A320s and A321s are all 12 years, none cancelable. This also goes back to Gary's question about lease term. So, based on the current FASB methodology, we don't see any arena for write-downs on our new A320s.

Let me just also remind you as we've said on our IPO road shows and in many public forms before, our whole business philosophy is to keep our fleet young. That's the best preservation that we have and we do that by doing two things. That is buying only new aircraft, and yet seeking to sell aircraft when they are still young. We look to sell aircraft after about the first third of their useful life, generally 25-year aircraft. When an aircraft gets to be seven or eight years of age, we will look to, it's a candidate for sale. That is still a fairly young aircraft, an aircraft less than 10 years of age, 7 or 8 years of age is still a fairly young aircraft. We believe by doing that we keep our fleet young. We minimize any potential risk against obsolescence or any kind of impairment charges.

Okay thank you.

Sure.

Jamie Baker, JPMorgan.

Thanks for letting me back in. Steve, when you look at the capital raising options menu for lack of a better term, what appeals to you the most at this point? Should we be thinking about private placements, unsecured public debt, unsecured bank debt, you know the entire list. What looks the best from where you're sitting right now?

I think we have made several comments about this in our 10-K. Basically that our strategy is to emphasize unsecured financing. I think we are executing that strategy, and as you well know, there's a whole range of products that are out there that we feel are suitable for us. Beyond that, I can't really make any further comments at this point in time.

Okay, as a follow-up given the uptick as of late in lessor-to-lessor deals, having bought assets from ACG for example, can you give a bit more color to what you were saying before in terms of what opportunities might you pick up specifically from other lessors?

Initially, when we started the Company in February of 2010, it was not possible for us to get instantaneous deliveries of new aircraft from Boeing and Airbus. The first delivery that we took of an aircraft that we ordered was about 11 months later, in January of 2011. So, during that period from the startup phase until sometime into 2011, we did rely on acquiring either young, used aircraft that already had leases attached from a number of lessors including ACG. We also put together a number of transactions where we acquired either new positions from airlines or sale lease backs with some of our flagship customers. This was a way of building up the initial portfolio to a sufficient level of scale until we began to receive new deliveries.

Now, once the new deliveries began and now they are taking on a larger amount of momentum, obviously our primary reliance on growing our fleet is the new aircraft deliveries that are outlined in our 10-K. So, we shifted from buying young, used aircraft and selected new aircraft in 2010 and 2011. Although in 2011 we already had a strong stream of new deliveries. But in 2012 and beyond, the bulk of our acquisitions are brand-new aircraft that we have procured through our long-term pipeline of orders from the four manufacturers.

Got it, thank you much. Appreciate it, take care.

Thanks Jamie.

At this time I'm showing no further questions in queue. I would like to turn the call back over to Mr. Ryan McKenna for any closing remarks.

That concludes our call for today, thank you for your participation.

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