Air Lease Corp (AL) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2013 Air Lease Corporation earnings conference call. My name is Karen and I will be your operator for today.

At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator instructions).

As a reminder, this call is being recorded for replay purposes.

I would like to the call over to Mr. Ryan McKenna, Head of Strategic Planning and Investor Relations. Please proceed.

Good afternoon, everyone, and welcome to Air Lease Corporation's first-quarter 2013 earnings call. This is Ryan McKenna, Assistant Vice President 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 Greg Willis, our Senior Vice President and Chief Financial Officer.

Earlier today, we published our first-quarter results for fiscal year 2013. 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, May 9, 2013, and the webcast will be available for replay 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 certain 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, May 9, 2013. 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 Corp. 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 suggested EBITDA and adjusted net income are non-GAAP measures and have been adjusted to exclude charges relating to amortization of discounts and debt issuance costs and stock-based compensation expense, among other charges. A description for our reasons for utilizing these non-GAAP measures as well as our definition of them and their reconciliation to corresponding GAAP measures can be found in the earnings release we issued today. This release can be found in both the Investor section and the 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 am pleased to report that Air Lease Corporation increased its fully diluted earnings per share by 46% in the first quarter of 2013 compared with the first quarter of 2012. Similarly, compared with last year's first quarter, our revenues increased 45%, pretax income increased 48% and our industry-leading pretax operating profit margin increased from 31% to 32%.

These metrics demonstrate the continued execution of our robust growth plans. Recognizing our strong growth and credit metrics, earlier today Kroll Bond Rating Agency initiated a corporate credit rating of A- for Air Lease Corporation. Kroll took a fresh look at the aircraft leasing industry, evaluated our business strategy and credit profile and arrived at a very positive outcome for us. I would advise you to read their report as it is publicly available. We view this as a meaningful step in the maturation of the Company that will allow us to further broaden our access to capital and continue to diversify our investor base.

As our favorable financial and operating results have continued, ALC's Board of Directors has authorized the Company's second quarterly cash dividend of $0.025 per share on our outstanding common stock which will be payable on July 8, 2013.

Additionally, we have authorized the American Stock Transfer Company to implement a dividend reinvestment plan for ALC's stock. We anticipate our dividend program to continue in quarters to come.

We remain confident in the ongoing demand for new aircraft and the long-term predictable growth provided by our business model. The global growth in passenger airline traffic continues. For example on May 1, the International Air Transport Association reported that global revenue passenger kilometers, RPKs, grew 4.2% for the first quarter of 2013 compared with the first quarter of 2012, with the month of March 2013 growing by 5.9% in RPKs over March of 2012.

The capital markets have been strong, allowing airlines to successfully access fresh capital or refinance existing debt at rates that are materially inside historic levels. Over time this should help the airline industry's balance sheets to improve.

Furthermore, airlines have generally remained relentless as they further rationalize their capacity and cost structures, rebuild their fleet with the most efficient and technologically advanced aircraft. The flexibility and fleet growth provided by the operating lease remains a key element in an airline's ability to cope with an ever-changing landscape.

In three short years, Air Lease Corporation has built the largest order book for Western built jets in the leasing industry, currently stretching out to the year 2023 to meet the growing needs of our airline customers. As ALC and its management team are committed long-term players and believers in the industry, we continue to look forward working closely with the airframe and engine manufacturers to provide the best future products to our customers.

Most recently, ALC has been evaluating the Boeing 787-10X, the Boeing 777-9X and Embraer's next-generation G2E jet family as a follow-on to our recent commitment to the A350-900 and the A350-1000 programs from Airbus.

We have also built what I believe is the best and the most capable management team in the aircraft leasing sector.

Let me now turn this over to John Plueger, our President and Chief Operating Officer and member of our Board of Directors, who will expand on ALC's operating results and strategic positioning.

Thanks, Steve. We are very happy with our strong operating results for the first quarter of 2013. During the quarter we delivered five aircraft from our new order pipeline and acquired two incremental aircraft in opportunistic transactions, finishing the quarter with 152 aircraft across a diverse and balanced operator base of 71 airlines spread over 41 countries.

As expected, the deliveries in acquisitions occurred during the back half of the quarter. Our average fleet age remained very low at 3.5 years with a healthy average of 7.1 years remaining on our leases. Our lease margins have remained consistent and stable.

While the first quarter was a relatively light quarter for deliveries from our pipeline, we strategically tapped the bond markets for attractively priced long-term capital in February. Despite the temporary negative carry of interest expense we were able to grow our net income by 49% year over year due to our core leasing operations without gains on sales from aircraft assets in our portfolio.

We have 13 deliveries scheduled for the second quarter. And the pipeline should deliver more evenly throughout the second quarter and remainder of the year.

As we stated on prior earnings calls, our forward lease placements to date are skewed towards Asian carriers as we sought to balance the geographic concentrations of our fleet. As of the end of the first quarter, Asia-Pacific has now reached 39% of our fleet net book value, overtaking Europe, now at 36% as our largest regional concentration by net book value. Additionally, no single customer now exceeds 10% of our fleet as measured by net book value.

These trends should continue as our pipeline of the aircraft continues to deliver over the next 18 months. Moving forward from here and beyond the Asia-Pacific region we do see new business opportunities in the Middle East, Africa and Latin America. Overall, we see this as a prudent asset allocation strategy reflective of a healthy regional balance for the aircraft in our portfolio.

If you have been following our progress, you know that during the first quarter we closed purchase agreements with Boeing, Airbus, and ATR to add incremental narrowbody and wide body aircraft to our pipeline. With those added orders in place, our marketing team has moved quickly focusing on the new 777-300ER placements, delivering from 2014 through 2016.

I am pleased to report that we have already signed firm lease contracts for six of those 777-300ERs aircraft with blue-chip customers including Korean Air, Air New Zealand, KLM and Ethiopian Airlines. Additionally, we have previously advised that this year ALC takes its last new A320ceo, current engine option, aircraft. I am now happy to advise that ALC has now placed all of its last A321ceo aircraft delivering through 2015. So as of now, ALC has no more new Airbus single-aisle ceo aircraft to place. We move onto placement of our A320 and 321neo aircraft beginning 2016.

In regards to the overall aircraft order backlog, we continue to work with the manufacturers to accelerate certain delivery positions to meet lease demand. Our 2013 deliveries remain unchanged. But we have now added two more deliveries in 2014 for a total of 36 aircraft that year and one incremental aircraft delivery for 2015 for a total of 32 aircraft that year. Keep in mind that as we place additional orders and accelerate deliveries, our forward lease placement percentage may reduce in comparison to previously announced placement percentages until we conclude firm lease placement of those recently ordered or accelerated aircraft.

So as of the end of the first quarter, we are now 100% placed for 2013, 92% placed for 2014, and 53% placed for 2015. This is right in line with our strategy of having our aircraft placed 18 to 24 months ahead of delivery.

On an overall portfolio basis, our lessees continue to perform well and we have no significant credit or [rearage] concerns.

With that, let me now turn the financial review over to Greg Willis who will walk you through the financial results in more detail.

Thanks, John. During the first quarter, our rental revenue grew to $190 million, up 44% from $132 million achieved during Q1 of 2012. This translated to a fully diluted EPS of $0.38 per share, an increase of 46% over Q1 2012 EPS of $0.28 per share. As compared to the fourth quarter, we maintained a 32% pretax operating margin despite having much fewer, nonrecurring gains on brokered asset sales.

Overhaul accounted for only 4% of revenues during the quarter. Since the start of the year, ALC has closed three substantial financing transactions.

This week we finalized a four-year nonsecured revolving bank credit facility with 26 financial institutions for $1.7 billion, with no LIBOR floor, maturing in May of 2017. This new facility amends and updates our existing bank facility by increasing the size from $1.1 billion to $1.7 billion, extending the availability period from three to four years and reducing the pricing from LIBOR plus 1.75% and an undrawn fee of 37.5 basis points to LIBOR plus 1.45% with a 30 basis point facility fee.

In March, ALC issued its first bond guaranteed by the Export-Import Bank of the United States for $77 million for two 737 800s on lease to Korean Air. This was a 12-year fixed rate financing priced at 1.6%. While we predominantly fund the Company with unsecured capital, we intend to utilize Ex-Im financing in a very modest way going forward, as it helps diversify our funding sources with long-term attractively priced capital which is important for risk-adverse funding strategy.

In February, we successfully printed a $400 million senior unsecured bond priced at 4.75% maturing in 2020. As you can see combined with our 12-year Ex-Im transaction we continue to lengthen the maturity profile of our debt portfolio as we opportunistically tap the market for capital. Our A- corporate credit rating is an additional positive development for our financial strategy going forward.

We concluded the first quarter with an overall composite cost of funds of 4.05% while being 62% unsecured. The new bank revolver I described earlier will be incorporated into next quarter's results and will continue to increase the unsecured debt ratio of our debt portfolio.

In addition to attractive pricing, this unsecured capital structure provides our management team with operational flexibility that translates into a competitive advantage for ALC in the marketplace. As we have stated before, a key aspect of our funding strategy is that we look to opportunistically tap markets in maintaining a high level of liquidity while minimizing interest expense. This provides us with the financial strength to optimize the funding of our order book and to capitalize on aircraft opportunities that are presented to us.

While we do not have a large number of deliveries in the first quarter of 2013, we believe it was the best decision from a corporate financial perspective to secure long-term unsecured financing at such low rates. Our approach to managing our balance sheet can be described as conservative.

We continue to execute our plan to modestly increase our debt to equity ratio, but not to exceed 2.5 to 1 and our overall SG&A will continue to decrease as a percentage of revenue.

This concludes my review of the financial performance of the Company and I will now turn it back to Ryan.

Thanks, Greg. 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). Mike Linenberg, Deutsche Bank.

Good morning or good afternoon, everybody. I have two questions here. Steve, when you talked about the -- or maybe it was John who highlighted the geographic concentration highlighting Asia being larger than Europe and also talking about opportunities in Latin America, Africa and the Middle East. It was notable that you left out North America and yet the North American market there is a sizable replacement cycle there.

What's preventing you from looking at North America more closely or is it just now it's not the time, maybe we are two to three years premature? Your thoughts on that?

That's a good question and I sort of anticipated. We are in pretty active discussions with all of the major US carriers including Delta, United, Southwest, America and US Airways, and we are trying to get a good handle on their fleet planning strategy, how they will allocate their aircraft acquisitions between outright purchases using double ETCs, using operating leases and that dialogue is gaining some momentum. We did not say in our release that we will not do this on business in North America but on a historical basis, as you know, the leasing yields to North American Airlines particularly US domestic has not been of the levels that we experienced in the international marketplace. But we will look at opportunities in the US going forward. It is kind of hard to pick what percentage they will play in the overall business.

As of March 31, US and Canada represented about 6.9%, so less than 10% of our book value of our fleet. That number could potentially go up if we do a couple of transactions in the US on multiple airplanes. But it is kind of difficult to predict the outcome of those discussions in negotiations.

Great and then my second question and this is maybe more of a conceptual strategic type question, I watched over the last few weeks seemed like every week, a week wouldn't go by without a press release coming out of Air Lease and involving a 777-300ER. And there are a lot of those airplanes on order and there are a lot of airlines that may be historically [didn't] use operating leases to the extent that they are now using them today. Like a [Sing Air] or even a Cap A. Given the size of that airplane and the number of these wide bodies out there and of course they are viewed as very good assets, it seems like there's not a lot of players in the space. I mean there is a technical know-how, there's also a huge amount of financing commitments to get these -- to place these airplanes or to do deals.

Is there --? You have been in this so long a time do you feel like maybe there is a barrier to entry there where only a few people can play with this high-quality asset and so, therefore, you have a lot of runway and a lot of opportunities with these larger airplanes and it is not just the 777-300ERs but maybe the A350-1000 that would be something that falls into that bucket.

Yes. The fact of the answer to your comment is yes. I guess you could -- don't know if you would call it a barrier to entry, but certainly it requires a pretty in-depth knowledge of the aircraft, how it is configured, how inspect, and how the -- how the aircraft actually then are returned at the end of the lease. It is easy to place a first-run aircraft, but it is actually you test your mettle as a lessor, if you hold the asset that long, as to what you are going to do with it afterwards, what is involved with the [BFE], the interior, etc. But let's take one further step back.

We order these 10 incremental 777-300ERs as a direct response to demand. We are very comfortable with the aircraft and we visit most of the major carriers globally and we have been very, very successful with our placements. And in fact there are less players in the 777-300ER space in our business. So we do enjoy we do enjoy a strong position in the 300ER as against most of our lessor peers. And I believe that that is going to transfer over to the A350-1000. We get great, we get good yields on the 777-300ERs. We have good pricing from the Boeing Company and all those factors are what led us to order more and we have been very happy with the results of our placements so far.

One other comment and this might be useful to all of you on the line, many of our 777-300ER placements are effectively replacements of older 747-400s. So by way of example our lease placement at Air New Zealand, British Airways, KLM and several others are effectively replacing older 747-400s. They are no longer as economical as they were 10 or 15 years ago.

So please don't look at this as just net growth in capacity. A lot of these transactions that we've done are primarily replacing older aircraft that are no longer as economically competitive as they were when they were at the prime of their career.

Jamie Baker, JPMorgan.

First question on aircraft. The consensus amongst your competitors seems to be that larger single-aisle aircraft are showing more strength than smaller single aisles, but the Twins are still more preferred given the noise around the MAX neo changeover, would it be fair to characterize your view as similar to that?

Well, look, we -- it's John. Yes. I mean we are -- our [four reviews] are more in line with the larger single-aisle aircraft, the A321s, the 737-9 MAX etc., we feel the industry is upgauging. Clearly if you look at the last year, year and a half and you look how the order book for example in Airbus for A-321 has been filling out nicely. The demand for the A-321 is actually very strong. The demand for the A-320 has been weak which is why lease rates have been a little bit light, et cetera. We think that that excess supply that cause that weakness is actually now working itself through the marketplace. But generally speaking we are bullish on the larger single-aisle aircraft as compared to the 737-8 current size or the A-320 aircraft.

Yes, as we look at capacity constraints at a lot of airports in Europe, Asia, North America, we look at gate constraints, we look at ATC limitations, we look at frequency saturation in a lot of the city pairs. We are noticing a movement toward a larger average size for departure of these single-aisle aircraft and so the 737-800, the A-321 and then the 737-8 and -9 MAX and the A-221 neo we believe will be the beneficiaries of that trend.

That's helpful. And the question that Mark Strader and I have asked you in the past is there any evidence that the higher export credit costs are starting to force an increase in sale-leaseback activity or perhaps more second gen leasing as some of the small airlines increasingly look to the lessors?

Yes, I think the answer is yes. Not in a large or a rush or a huge way, but I would just say that over the past six to eight months we have been responding towards needs and inquiries both on a sale-leaseback basis, but also from a placement of our own order book bases where the airline has told us that they have looked at the alternative size of financing including Ex-Im or ECA, anything that has been covered by the 2010 aircraft sector understanding ASU. And we can correlate a number of inquiries and discussions to those comments that have been made by airlines that are saying, we are now looking at the operating lease as an equal or better methodology for getting our aircraft, just based upon some slightly higher financing costs.

And we both had situations where large airlines may have options on some additional either Airbus or Boeing aircraft and instead of exercising those options they have opted to go with us on an operating lease using our aircraft because they find that's a little more efficient. They have fewer progress payments to make to Boeing or Airbus and these upfront costs in terms of total dollars have gone up significantly in terms of guarantee fees.

and if I could just squeeze a third in, do you think Kroll rating helps you gain any more traction with the more traditional agencies?

It is hard to say. I think it will just help us with our overall financing needs going forward, I think it, in the insurance marketplace, is very, very helpful because we believe that this will equate and eventually lead to Air Lease being an NAIC 1 of our understanding of that methodology. So yes, I think it will be helpful in our overall financing. As to whether it is influential in our discussions with the other rating agencies I really have no idea.

Terrific, thanks so much. Look forward to the event next week. Take care.

Arren Cyganovich, Evercore.

Thanks, you talked about discussions with domestic airlines with their large orders. Are you in discussions at all with the international airlines that have very large orders that will be coming online over the next few years to step into any of those orders?

Most of our discussions with both the US domestic airlines and international carriers that have their own direct orders involve placement of our aircraft. Aircraft that ALC has ordered from Boeing Airbus. We are not really focused in a meaningful way on the leaseback market. What we have seen is that the lease rate yields on leasebacks are not even close to what we were able to achieve on our direct acquisitions from the manufacturers.

So, we are not really emphasizing the sale-leaseback model, but we will look at situations where we might mix in a limited number of sale-leasebacks to complement direct placements of our own aircraft in sort of a package deal to a particular customer. But we are not really a large participant in the sale-leaseback auction process.

that makes sense. You have a large order book. So --

Yes, we have a large order book. We buy wholesale and we are funding at very attractive rates and we are not really a market leader in the sale-leaseback sector. There's a number of other very good players that are really good at that and they have achieved success and we will let them fight it out.

Lastly the Ex-Im financing that you did in the quarter, was this part of the grandfathered aircraft that doesn't face the higher ASU and do you anticipate doing additional Ex-Im financing going forward?

Yes, these two aircraft were grandfathered on the deal with ASU and we are going to strategically look at additional new aircraft mainly because of this Kroll rating also may in theory help our upfront accent fee as well.

Yes, we believe that with an NAIC 1 rating and the Kroll A- rating being investment-grade category, it will effectively reduce our upfront guarantee fee which we can then amortize over the 12-year financing period. So that could get us closer on some of these transactions where it is kind of a close call between just using unsecured sources versus a 12-year term loan.

Right but overall we look to have about 10% of our debt going forward being secured over the long run.

Thank you.

Isaac Husseini, Barclays.

Good afternoon. Question on the growth opportunities. Can you help us maybe understand or size the incremental growth opportunity above and beyond the order book? You said in the past that you wanted to focus on younger aircraft and you said in the past and even to the prior question that the sale-leaseback market isn't ideally one that you would want to be very active in. So when we think about even more growth, is that going to be coming from adding to the order book incremental orders or is it maybe stepping in to take over some of the slots from airlines that perhaps do not need the orders that they placed a few years ago?

So the incremental growth that we mostly referred to we have already partially outlined in our comments. One is the acceleration forward of our order book to meet demand. We are still even today talking with manufacturers of what slots can we get earlier and now outline in my remarks a couple of additional slots in 2014 and another one in 2015, et cetera, et cetera. We also advised that this quarter we purchased from other lessors two incremental opportunistic aircraft on lease to very good carriers. And that remains a source although a modest source of continuing growth. We are always on the lookout for well-priced assets and across the aircraft lessors, we have now bought aircraft in our first year primarily from most of the other lessors. The other lessors, like we do, look at their fleets and look at the balance and concentration limits with customers, sometimes they want to lighten those concentrations limits, sometimes they have a concentration exposure too much in a certain aircraft type. So we also look at those opportunities.

And then finally while we don't we are not a major player in the sale-leaseback market, we would consider as Steve mentioned that some sale-leaseback transaction based on more limited basis but only tied and primarily tied with the placement of new aircraft from our own order book. You know, we are also I would say the final category is when manufacturers be it Boeing, Airbus, Embraer or ATR approach us which they have done routinely the past couple of years and we have taken advantage of this, they approach us with a white tail on their line because they know that we can meet -- a white tail meaning an aircraft that has fallen out of placement, customer went away, whatever the circumstances are. The airplane is being built and now does not have a home.

We have taken advantage of that so far to date and we will continue to do so and the manufacturers do on a case-by-case basis bring us those opportunities which we have acted upon and will continue to do so.

The main point is that we now have a strong balance sheet. We have liquidity reserve that we can in fact take advantage of situations where the Company can acquire incremental aircraft. So we do have that financial capacity. And we built into our long-term model the ability to acquire additional aircraft on a rigor basis. And we will continue to do so.

That is helpful. And maybe as a follow-up. You have been talking in the past about the demand for aircraft in Asia. Now with 39% give or take if you are booked in Asia do you guys have any in terms of limits concentration limits on any geography or could that number go up further?

Well, I think we publicly stated that any of our investor conferences and in our public pronouncements that we could see at Asia-Pacific and when we talk about Asia-Pacific, that does include, for example, Australia and New Zealand and the South Pacific, not just Asia, that that could wind up and stabilize in the low 40 percentile of the total portfolio. So 39% is certainly the best that we have achieved so far in terms of the Asian marketplace. But that could rise a little bit more and then probably stabilize going forward.

And frankly, we are more focused on single country exposure than we are regional exposure. And so a comment I made in my -- in the text of the call was that we are now at a point at the end of this quarter where no single country represents 10% even of our net book value. And that is an important -- more of an important metric for us. So we do look on a more -- we are more focused on country exposure per se than we are in regional exposure.

John Godyn, Morgan Stanley.

I wanted to follow up on some of the comments about the US and opportunities that might be there. There's a sense that, if anything, I guess US airline credit profiles are getting even better than they were in the past which I know you are aware of and it seems like that would make leasing to them even less attractive than it had been in the past. Just hoping you could elaborate further on what might be changing on the margin that could create opportunities for leasing above your hurdle rates if that opportunity had not been attractive before.

Well, to just give you an example, let's say one of these US airlines is trying to rationalize their fleet. They are trying to reduce the number of fleet types to become more cost-efficient and they require additional aircraft of a certain type, a new generation aircraft above and beyond what they have ordered themselves.

So in those situations, the driving force might be the need for the aircraft that ALC will have available at some point in the future to complement and supplement what the airline has ordered themselves. In that case, the lease rate will be an important factor, but may not be the most important factor.

Secondly, we have potentially two large US carriers combining in the near future and they have a pretty diversified fleet of both Airbus and Boeing, both single-aisle and widebody types. So there could be opportunities there once that consolidation process is underway for us to perhaps take aircraft away from that combined entity, put them outside the US with other customers of ours and input new aircraft into that airline to sort of optimize their own fleet composition.

So we are going to be working very creatively, but I think one of the guiding lights that we always have is that we have to achieve our returns, financial returns, that are close to our overall portfolio performance and we don't want to undermine our financial results with low lease rates. So the end result has to be an economically efficient transaction and one that is a win-win for both the airline and for air lease.

That's actually very helpful examples and a good segue into another question. You've sometimes described yourself as more than a lessor, kind of a partner with the airlines, sometimes a fleet planner of sorts. To date it seems that the value add you provide in that way gets baked into the quality of the leases you sign, but I am curious if there are any other ways to leverage the sort of existing platform relationships and brand that you have to accelerate earnings growth even more. I guess we have seen other lessors manage lease portfolios for others that they don't own, but perhaps there are even more creative ways to create value that I am not even thinking of.

Well, I think we try and use our relationships. In fact our fleet planning skills and capabilities as a core element of our whole lease business and that means looking at rationalization of fleets, it means maybe helping an airline taking out used aircraft. Where we may or may not be a principal, it may mean that we get paid a fee for an assignment that takes that means that we distribute some of these aircraft for the airlines.

We continue to develop these processes and these ideas, but I think airlines have come to expect that when they deal with Air Lease, part of the bang with the buck they get is the benefit of what we believe our opinions will be, how they should evolve their fleets. So I think the answer is if what your question is leading to is can we get paid by the airlines for doing this. Look, we are open to it. I think we are open to the concept of being compensated if we take a lead role in the disposition of a fleet or a subtype of aircraft for an airline. I think that is a fair thing to do. And we are looking for those opportunities.

That's very helpful. Thanks.

Let me also make one, I may have made a comment earlier talking about our concentration of regional and country aircraft. I may have said that no single country exceeds 10% of our fleet as measured by net book value, it is actually no single customer. So I have just been handed a note to correct what I said there. So we can go on to the next one.

(multiple speakers) no, go ahead.

Yes, I was just going to say that we are also expanding our asset management aircraft management business for third parties and we increased our service revenue and that in 2012 -- that will continue to grow in 2013 as we help third parties manage those aircraft assets. Many of which are leased to airlines we already do business with. So the incremental cost to us is minimal and just generates additional revenue for the Company.

Jason Arnold, RBC Capital Markets.

Good afternoon. I guess if we see S&P and Moody's jump in here with a favorable rating like Kroll which seems like at the three-year operating history mark we might see here sometime near term but I was just curious how you would envision your funding mix changing up if you are going to have access to kind of cheap longer-term corporate debt?

Well, I don't need to tell you that the bond market has been very, very favorable to issuers. And what we are seeing is that an investment grade issuer has a larger scope to do various maturity levels. There is a broader and a deeper availability of investors or an investment grade company.

So we would try very hard to bring down the incremental cost of our financing going forward and take advantage of the recognition that the rating agencies will be giving us in the future. And one of our big goals is to bring down the average cost of our financing length and our average maturity so they are more in line with the average lease remaining on our leases and thereby drive profitability to a higher level. And then that kind of feeds itself because the more profitable we are the more respect we will have from the rating agencies, and hopefully continue to drive down the cost margins on our funding.

So we are actively pursuing that. And it is a high priority for us to optimize our funding and to minimize the cost of financing in the future.

Now would you continue then also in the same vein to target that kind of 70% fixed and 30% floating-rate kind of approach on the funding cost side?

Yes. That's ultimately our goal. And I would also add to Steve's comments that one of our long-term views towards capital raising is this is now very much a global market and we do look to expand even more so than what we have currently done being able to raise money in global capital markets including in Asia and elsewhere and in Asia with the Singapore Hong Kong, etc. etc., which now of course represents the largest, Asia Pacific being the largest region now for our Company. It is a natural source for capital raising there as well.

So, it is really important for a US foreign -- any foreign company, be the US or other in the long-term view to have an investment grade rating for continued capital access.

Now having said that, we have enjoyed a really nice ramp-up in the -- from Asia-Pacific banks in our banking group. But I think we have no current concrete plans but just a big picture that investment grade rating will also help us globally outside the United States with capital raising in the debt markets.

What is interesting also in this new $1.7 billion revolving unsecured bank facility we brought in a number of large European banks, notwithstanding the headlines that we see everyday about Europe, and we also brought in a number of Asian banks into that facility. So we are in a sense globally diversifying our banking friends and banking partners. And I think the rating agency will have to obviously consider that in their evaluation.

Excellent. Makes sense. Thanks a lot.

Scott Valentin, FBR Capital Markets.

Good afternoon. Just a quick modeling question on the accelerated deliveries the 2 in '14 and the 1 in '15, do you know which quarters they will hit and what aircraft types they are?

The one in '14, there's one I think in the second quarter, one in the fourth quarter, but it is not going to be meaningful in terms of being able to define the actual date of delivery. Because we are working with Boeing, Airbus, and ATR right now to move some other slots around, hopefully bring stuff forward. So I think even we would have a tough time modeling the specific revenue impact of those early deliveries. It is an ongoing process and as we add both incremental opportunistic purchases and succeed in maybe some of these slots forward, that will all have a positive influence on the revenue generation of the Company in '14 and '15.

Scott, also let me add that as an operating matter especially for 2014, aircraft have lead times for specification orders of buyer furnished equipment, et cetera, et cetera. So part of the art in this is being able to align not only getting incremental positions, but being able to have those positions in such a way that we can build them on an on time, on schedule basis for the customers that we have in mind. So part of the balance that we do in the back-and-forth with all the manufacturers is by what date do we need to have the spec identified? And sometimes that causes things to move a month or two, et cetera, et cetera. So there are some practical matters as well. It is not just as simple as we have got a new airplane in January 2014, great. We have got to be able to build that airplane to our customer's specifications. There are some lead times involved with that.

A follow-up there, so it sounds like you have your forward delivery schedule that's in the Q, and we can get the number. So you expect to see additional aircraft on top of that is what you're saying.

Well, we took two additional aircraft including one wide-body aircraft an A330 in the first quarter. We are picking up another airplane in the second quarter and we are in discussions for additional aircraft, but we are being very selective on things that are outside the boundaries of our existing order base. But you can see there is a pattern to it. There are additional assets being acquired, if we think all the dimensions of the transaction make sense for us, both financially -- is it a strategic customer? Is it a new customer? Is it a kind of airplane that we feel is a good fit into our portfolio?

So a lot of these boxes have to be checked for that airplane to make sense.

Thank you and one last final question. There's been some concern about overordering by some of the Asian airlines. I was just wondering want to get your thoughts if you think, one, they are overordering or, two, if they are what impact it may have on the Asia-Pacific airline profitability if there are too many aircraft there?

Yes, the biggest overordering has been both in Asia and in Europe from low-cost carriers like Lion Air in Jakarta, the Asia Group in Kuala Lumpur. Those players have really ordered very aggressively and both into the 737 MAX and the A-320neo sectors. Whether those aircraft will be delivered on the current projected schedule and will they go to these designated airlines is yet to be seen.

But we are having some difficulty understanding based on their current plans and networks whether they can, in fact, deploy all of these aircraft efficiently. But I believe that both Boeing and Airbus have built in a cushion into their own production plan and have overbooked more sales than they can actually build. So they built in this cushion to take it to an eventual consideration that some of these aircraft may be delayed or canceled or deferred and I think both manufacturers are playing it pretty safe right now.

I would just in tagging onto my previous comments, frankly, we wish these airlines well and we want them to grow and be profitable and do well, but it is exactly these kinds of situations that can lead to incremental opportunities for Air Lease. If in fact some of these carriers decide to defer or to cancel or to, they are not for whatever reason they are not going to take them, we stand ready. And in fact I can tell you I am kind of hoping that these will actually present incremental growth opportunities for us because we can grab up those positions and deploy them very, very effectively globally.

Every time an airline like a Ryanair or Lion Air or a Norwegian or an Asia orders hundreds of planes what really happens is a lot of delivery positions get tied up and so in effect positions that we have in 2015, '16, '17 become more valuable because there's a reduction in the total number of available positions and therefore a lessor like Air Lease can provide an airline what it needs because some of these low-cost operators have tied up so many positions. So in sort of a perverse way it is actually helping us right now.

Okay. Thanks very much for the color.

Moshe Orenbuch, Credit Suisse.

Actually most of my questions have been asked and answered. Maybe on a shorter term basis than you have talked about it sounds like you should have some pretty good performance on the interest expense line going into the second quarter and second half just because of the commendation of the pre-funding and what you did on the revolver. How aggressively will you use the revolver and how should we think about that on a shorter term basis? Sounds like it should be pretty good.

We are a management team that runs a capital-intensive company who has an experience at our prior company of seeing what can happen when the financial market close down. We don't anticipate that will happen, but we are older and wiser. And therefore we will always err on the side of caution when it comes to having ample liquidity.

I think we have achieved the right balance in that liquidity between having good low-cost funding for a good amount of time in the future, having plenty of liquidity available for these opportunistic transactions, and I would say that the unsecured revolver that Greg and his team have just now obtained for us or amended from our prior revolver just gives us that flexibility.

As to how much we are going to use it, it will kind of depends upon what incremental opportunities that we find out there. We have plenty of capacity now. We manage our Company prudently. We look at all aspects and so we don't really give any guidance as to how much we are going to use revolver or not, but suffice to say that we are amply funded and that just gives us a lot of capital to be able to find good opportunities as we go forward.

And one of the other advantages of this new bank facility is that it allows us to optimize and pick and choose the timing of when we do go back to the bond markets because we do have this flexibility of utilizing the revolver and drawing down paying back as we see fit. So in a sense it actually is a good management tool and sort of optimizing the timing of any additional longer-term maturities.

Secondly, we are watching the policies of the central banks in North America, Europe and Asia very closely for any sign of interest rates moving in a northerly direction. And so long as we are sitting in this low-cost interest-rate environment, a prudent usage of short-term funding based on short-term LIBOR rates is extremely efficient for us particularly for things like progress payments and opportunistic purchases.

Great. Please let us know if you see any of those signs.

If we knew that we wouldn't be in the (multiple speakers) business.

Thanks a lot.

Helane Becker, Cowen Securities.

Thanks for the time. Just a couple of points of clarification. Steve, on the dividend is it something that you are going to look at and visit every quarter or every year or how should we think about your dividend policy?

Well, before we declared our first dividend we and the Board and our finance team spent a lot of time thinking about it and I can tell you that we had an overwhelming strong support from a lot of our shareholders particularly our institutional shareholders and a lot of our retail holders that had various funds and buckets available for investing in dividend-paying companies.

So we looked at that long and hard and made a decision that by having a small modest dividend that has a future, possibly, of growing over time we open up new avenues of equity investors who cannot invest in non-dividend-paying companies. And I think it has turned out to be the correct assumption.

Now in terms of policy the Board looks at our financial performance very carefully every quarter. And so long as the Company is doing well we will continue to pursue being a dividend-paying company. But each quarter we and the Board of Directors make that determination and we just declared our second dividend which is payable on July 8 and hopefully our thinking is that this will be a portly event and as the Company prospers, obviously the Board will take into account the merits of growing that dividend in the future. But we will take it on a quarter to quarter basis.

Great. And then my other question is have you ever or could you break out where India is in your business and how you are thinking about that market, given all the issues that have gone on there in the past year?

Yes, we have -- this management team has a tremendous amount of experience in India not just in our current company but in our prior company. And we have dealt with Air India, we have dealt with start-ups, we have dealt with low-cost carriers, we've dealt with airlines that got merged into both Jet and like Air Deccan that was bought by Kingfisher, we dealt with Sahara that was bought by Jet Airways.

We have watched that market very carefully and it is very unfortunate that a country of that size does not have a predictable way of dealing with airline insolvencies and airlines that do not perform their obligations. And I think it is a clear demonstration that you can have an international treaty like a Cape Town, but each country will didn't customize its own responses to how they deal with it. So I would say right now the Indian Airlines as a whole have not been profitable. I think Indigo and maybe to a lesser extent SpiceJet were the only two that had sort of credible operating margins.

The industry grew too fast. Once the country was liberalized because there is to be a duopoly between Air India and Indian Airlines and once the country was opened up to private airline first jet and others, there was a massive increase in capacity. Yields went down down and virtually every airline lost money. We now see the jungle sort of stabilizing a little bit and we will look at, cautiously, opportunities in India but I would have to say right now it is not a real priority for us because we have so many other countries and airlines that demand and need airplanes from us.

So India right now is on the watch list. We want to see what happens with government policies both at the federal and local levels of how they deal with repossessions. And we just want to see a more robust recognition of ownership rights in India by aircraft owners and lessors. And once that is more clear, I think we'll take another look at India. But for the time being there's a lot of other countries where we feel more comfortable.

That is not to say that in the future we don't consider India an interesting place to do business. We do have two customers there that are performing well. SpiceJet and Go and we note the market. We have some members of our management team that are intimately familiar with India and they have done a lot of deals there. So we are going to watch that market very carefully. We'll see our other lessors perform, whether the airlines can regain profitability or decent margins and will see out the regulatory climate becomes more lessor-friendly. And when all the stars are aligned, certainly we will look at going back into that market.

But right now it is not sort of at the top of our list.

Thanks for your help on that.

I hope you understand our position on that.

I think you made it quite clear. Thank you.

Glenn Engel, Merrill Lynch.

Good afternoon. A couple of questions. One on the aircraft you are purchasing. How do the prices today compared to the prices you did a couple of years ago? Are we just seeing inflation type increases?

You are asking kind of a very touchy question. I mean obviously we hope we build in some good protections for the Company in terms of inflationary indexes with the manufacturers. So we are not seeing a significant difference between what we paid for an airplane in 2011 versus 2013. And we are trying to keep that inflationary momentum to an absolute minimum.

That's clear. Second question is you have seen even Air Canada and American access the asset ABS market. Is that a market that could be attractive to you and what would it take?

We look at the ABS market not as a direct function of our day-to-day operating philosophy or funding of our Company, but it could (technical difficulty) in the future for disposal of a pool of assets into a structure, into a secured structure. But at the moment we don't believe that is the most optimal financing for us, because as an operating lessor we want to have mobile aircraft that we can deploy in different jurisdictions, different countries, different airlines. And the ABS security structure has some limitations and handcuffs that we don't believe are really ideal for an operating lessor.

So it could ultimately work for us as a disposition vehicle of assets, but it is not going to be a primary source of financing. John, do you want to add something to that?

Spot on. That's exactly right.

final question. Can't you give any thought on your interest in 787s and what would it take to start buying more of those?

Well, we already have 12 787-9s on order and they don't deliver until -- the first don't deliver until 2017. We have already placed the first eight of those 12. Steve indicated in his remarks that we are looking at the 787-10X, a new product. And I can only say we have nothing specific today, but as we grow our fleet, I think you can see us adding to the 787 platform in a meaningful way.

Thank you very much.

We spent an awful lot of management time working with Boeing for many years on making sure that the model lineup of the 787 will be a very, very efficient workhorse for the airline. So our main focus is obviously on the second and third generation 787.

And your view is the issues they have had or things that don't really dent your enthusiasm for the plane in the long run?

Correct. Well, we took high school physics and we studied electricity so that is as much as we know about it.

Thank you.

Thank you for your questions. I would now like to the call over to Ryan McKenna for closing remarks.

Thank you all for joining us. That concludes our call for today and we look forward to speaking with you all next quarter.

Thank you for joining us today. That concludes the presentation. You may now disconnect. Have a good day.