Air Lease Corp (AL) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2014 Air Lease Corporation earnings conference call. My name is Jackie and I will be your coordinator for today. (Operator Instructions).

I would now like to turn the conference over to Mr. Ryan McKenna, Vice President. Please proceed, Sir.

Good afternoon, everyone, and welcome to Air Lease Corporation's first-quarter 2014 earnings call. This is Ryan McKenna, Vice President, and 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 2014 results. 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 8, 2014, 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, reviews, 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 8, 2014. 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 statement or information in light of new information or future events. 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 increased its dilutive EPS to $0.57 per share in the first quarter of 2014 compared with $0.38 in the first quarter of 2013 which is an increase of 50%. Our topline revenues for the first quarter of 2014 were $246 million versus $192 million in the first quarter of 2013, an increase of 28.3%.

Air Lease's pretax income in Q1 2014, which is an important measure that we use, was $94.7 million versus $61.7 million the prior year, a 53.6% increase year to year. This was achieved through our core leasing operation, our focused efforts on reducing our cost of funds as well as sales and trading activity.

We have a strong investment grade quality credit profile and Air Lease is soon crossing the threshold of having built a 200 aircraft owned portfolio and a $10 billion total asset quality balance sheet in the coming weeks. These operational and financial achievements place Air Lease at the top tier of aircraft lessors. Just a note, Air Lease is taking delivery of 15 new aircraft this second quarter of 2014 including six new Airbus A321-200s, two new Boeing 777-300ERs, four new Boeing 737-800s, and three new ATR 72-600s for a total of 15 aircraft.

Passenger traffic continues to meaningfully outpace global GDP growth and we are observing a rising demand for our new aircraft. IATA reported that passenger traffic for the first quarter of 2014 grew 5.6% versus 5.2% in the first quarter of 2013. We are keeping a watchful eye on statistics that could suggest any slowing future months, but we view this as a continuing positive sign for the overall health of the industry.

In addition to the traffic growth, we remain primarily focused on the demand generated by the replacement cycle of an increasing number of aging aircraft. ALC addressed some of this demand by topping all future orders for nine incremental aircraft during the first quarter with Boeing, Airbus, and ATR to meet the precise needs of our airline customers. As we look towards the Air Show in Farnborough this summer, we will closely evaluate the new technology aircraft from the manufacturers with laser focus on favorable economics to our customers and our shareholders.

We are currently evaluating a number of aircraft types, including future product offerings from Boeing on the new 777-9X from Airbus, and the potential of a new A330neo and from Embraer in Brazil, on their E2 next generation 190 and 195 aircraft. We have seen very strong demand for our A321neo aircraft and now I have concluded and announced the first leases on those aircraft with two different airlines.

We remain mindful of the currency and political risk that our customers face as we look beyond to the rest of 2014. Currently in our fleet we have not experienced any customer issues regarding currency fluctuation. However, we view the strength of the US dollar as a potential opportunity to acquire reasonably priced assets so increased volatility appears in emerging markets.

We are watching geopolitical events unfold in Russia and the Ukraine in Eastern Europe and think it is useful to mention that ILFC has minimal exposure to these regions both in terms of our current fleet and our forward order book.

And generally, we feel very good about our portfolio of aircraft, our airline customers, regional exposures and concentration limits. We believe that we have got the right balance. With these strong results in mind, Air Lease's Board of Directors decided yesterday that it was appropriate to continue our quarterly cash dividend of $0.03 per share per quarter. With our firmly contracted pipeline, our investment grade credit profile, ALC is well-positioned to thrive in this evolving landscape.

Now I would like to take the opportunity and turn this over to John Plueger, our President, Chief Operating Officer, member of our Board, who will further discuss our operations and strategic positioning.

Thanks, Steve. During the fourth quarter, we delivered five aircraft from our order book and sold two aircraft from our fleet, ending the quarter with 196 aircraft in our portfolio.

Now, Q1 has historically been a light quarter for deliveries and Q2 will pick up with the additional aircraft that Steve advised including two 777-300ERs. I would like to point out that those aircraft are delivering predominantly in the back half of the quarter. So the full impact of those leases will not be realized until subsequent quarters.

Regarding sales activity, we started off the year by selling two older aircraft from our fleet, plus two aircraft sold on a trading basis, each for a gain. We had been selling some of the few older aircraft in our fleet for the past two years, and I want to remind you we actually have very few older aircraft in our fleet. However, we anticipate very light aircraft sales for the next quarter.

As time passes and our fleet continues to grow, more aircraft in our fleet will reach the seven- to eight-year age range and become candidates for sale. As such, we anticipate more sales to occur in the second half of the year (technical difficulty). Demand from buyers of midlife aircraft is solid.

Also as we previewed to you last quarter, we did receive in Q1 the insurance proceeds from the fourth-quarter loss of our Embraer 190 and we do have a multimillion dollar gain from those proceeds included in other income for this quarter.

During the last earnings call, we indicated that we had concluded all of our new aircraft placements in 2014 and 2015, our focus shifting now to 2016 and beyond. Due to the incremental orders during the quarter, which we have now advised you of, we now have one incremental unit in 2015 that we will place shortly. I would like to re-emphasize that those -- that these orders were in response to continued customer demand.

Let me just comment that along the same line as the growing order backlog and lead time with airframe manufacturers, we also see a trend towards for lease placement further and further in the future. We now have airlines requesting quotations and leases on next-generation aircraft delivering in 2017 through 2019 and beyond. Many of these airlines have delayed too long ordering their own new generation equipment, thereby needing to obtain these aircraft from our order pipeline.

It provides us with an interesting dynamic as we decide exactly how far forward our lease placements should be. This is a good problem and speaks well for the strong, yet very manageable forward order book that ALC has set to be on a continued steady growth trajectory for the foreseeable future.

Before I turn this over to Greg Willis, just want to make a quick comment that we don't do often enough. And that is simply to thank all of the Air Lease team and employees for their dedicated and tireless efforts every single day to produce these good results for our shareholders.

So let me now turn this over to Greg Willis who will walk you through our financial profiles that we believe further differentiates ALC. Greg?

Thanks, John. Since the announcement of the 10-K, ALC has completed two significant financings. First, we opportunistically tapped the capital markets for a benchmarked $500 million senior unsecured bond priced at 3 7/8 maturing in 2021. This was an excellent transaction for the Company. We were able to tighten our spread to the Treasury benchmark materially from prior transactions, broadened the distribution of investment grade investors and extend the duration of our debt portfolio.

We believe there is substantially more room for spreads to tighten as our credit profile continues to strengthen.

Secondly, we were able to upsize and extend the maturity of our corporate unsecured revolver. We increased the size by $100 million to $2.1 billion priced at LIBOR plus 125 with no LIBOR floor now maturing in 2018. The extension of this facility has created a smooth maturity profile for the next seven years.

We remain extremely appreciative of the support of our globally diversified banking group.

Our strong cash flows during the quarter coupled with a light quarter of deliveries actually caused us to delever slightly to 2.3 times debt to equity. Our debt to equity ratio has quarterly cyclicality that matches our delivery stream but has no impact on our overall target of 2.5 to 1.

Our cost of funds remains steady during the quarter at 3.7%. We continue to make progress reducing the secured debt on our balance sheet now only 14% of total assets. This is extremely close to our stated target of 10% secured debt to total assets.

When looking at our debt portfolio, 77% of our debt is unsecured. Additionally, we have now reached a target of 70% fixed-rate debt that we stated as our goal when we founded the Company. We said that we would achieve this balance without using hedges or swaps and I am pleased to report that we have lived up to that commitment.

This concludes my review of the financing activities of the Company and I will 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). Moshe Orenbuch, Credit Suisse.

Those nine new orders, what happened to allow you to do that? Is that something that you think will open up? I mean are these things -- are these slots that you are trading with others? Can you talk a little bit about that?

No. They were direct ordered from Airbus, Boeing, and ATR that we have been discussing with them for some months and a few airlines moved there on direct orders around and were able to get some slots that we thought were beneficial for us and we had already targeted customers.

Well, it certainly sounds that way since you said you only had one of them still available. Any kind of ability to tell us about whether there is -- you think there would be more coming as the year goes on?

I don't think there will be anything in the short term. I mean, the order books are pretty booked up at both Airbus and Boeing. We do look for periodic opportunistic situations, but it is a pretty rare occurrence.

Got it. Thank you very much.

I just wanted to comment that we this is really nothing new from us. We have routinely on an opportunistic basis we have picked up incremental orders from manufacturers over the last couple of years including in 2011 and 2012. So it is just a matter of finding the right opportunities and making the stars align.

All right. Great, thanks so much.

John Godyn, Morgan Stanley.

John, you had some very interesting commentary about a willingness to lease forward through 2017 and 2019. I was hoping that you and Steve could perhaps elaborate on what you are hearing from customers there? Is that all replacement demand, is it partly a desire to grow as airlines look out that far? I mean they have been pretty profitable lately. Just elaborating would be very helpful.

Sure, happy to do that. Yes, it is primarily the replacement of aircraft. For example, I will just give you one example. We are working on a current project where we have our A350-900s delivering in 2019 and beyond. This will be for an operator that is currently phasing out the remainder of the A340 aircraft. So it is all of the above. But primarily replacement-driven.

And so I think the point we were simply trying to make is in many ways, our backlog, if you will, or our demand going out in the future is paralleling the large backlog and demand from the airplane manufacturers. And for us it is really a question of how far forward sitting here today do we decide to lease an aircraft? I mean do I go out five years, do I go out six? The world changes very quickly.

So it is a matter of judgment and a matter of our assessment of the stability of every individual customer we are talking about. But I think it is -- I think it bodes well and particularly bodes well with respect to our order book. These are basically precious commodities going forward and there are many airlines which have not yet ordered new technology, new generation aircraft, both on the twin aisle and the single aisle side. So as I said, it is a good problem to have.

I just want to add to John's comment that on these forward lease placements that are involving deliveries that are two, three, four, five years from now, we do build in some very appropriate financial adjustment mechanisms to protect Air Lease Corporation from interest rate fluctuations or any adverse event that may occur with the customer itself.

And that's very helpful. And, Steve, you mentioned A330neo. I was wondering if you had any initial thoughts that you would care to share.

Yes. We have had a lot of going back and forth with Airbus, with the engine manufacturers, with a number of airlines that have raised their hand as potential launch or co-launch customers for the airplane.

Basically, I think what Airbus is evaluating is a new generation of A330-200s and 300s with engines that are more current technology and are being currently devised or in operation. Derivatives of engines already in operation that would offer a double-digit increase in efficiency and fuel savings. And I think Airbus is looking at that very carefully as a possible alternative to the A350-800.

That's very helpful. Thanks a lot.

Helane Becker.

Hello, gentlemen. A question about the 196 and I think you mentioned that you would have over 200 aircraft by -- in short order. How does that compare with where you thought you would be when you did the IPO?

I think it is actually very close. I would say to within 15 to 20 airplanes of where we thought we would wind up.

Where you thought you would have like 185, 85 -- 180, 185 where you thought you would have 210 or 215? Which direction?

More like the 185.

Okay, all right. That's great. I'm sorry?

What we didn't forecast is two factors. We did not anticipate a stronger demand for new generation aircraft leasing from the airlines which is really part of this replacement cycle that John just talked about.

And secondly, we have enjoyed a lower rate of funding our portfolio, which in turn has enabled us to add more aircraft because our profit margins have been wider than what we originally anticipated back in 2010, 2011. So we have had the luxury of being able to absorb more aircraft into our fleet because the financial profile of our balance sheet has been stronger than what we originally projected.

Okay. That's actually really awesome to know. Thank you very much. And that is -- the only other question I really had and, John, you may have just answered it, too, is with regards to the 2017, 2019 deliveries in terms of the credit quality of the airlines.

How do you feel about the credit quality of the book now and the companies that are coming to you, are you happy with their credit quality as well? Or would you be in a position where you would say, no, we don't want to lease to you because we are concerned about your future?

Yes. I think Steve hit it on his remarks. We are very happy with the overall balance credit quality of our current portfolio and of our current customer base. So but clearly as we look forward out four, five, six years, that becomes even more critical because we are placing a longer forward bet with potential customers.

So I would say it is safe to say that to the extent that we are placing some of our newer technology aircraft now you have seen us announce some neo-placements recently and we will be announcing further high-technology placements in the coming quarters. We will be paying particular close attention to our assessment of each of these customers especially as you get out in the 2019, 2020 timeframe.

But we are very focused on our customer quality both in terms of operating integrity and financial capability. Just to give you a little example, we have five new Boeing 777-300ERs delivering this year. Two are going to British Airways on long-term leases. Two are going to Air New Zealand on long-term leases and one to Etihad Airways in the UAE.

So you can see that the credit quality and the solidity of these clients does give us the ability to sleep at night in terms of their ability to make their lease payments for many, many years to come.

Okay, great. Thank you very much.

Arren Cyganovich, Evercore.

On the aircraft that you sold in the quarter did you give any details about what types of aircraft those were? And are these aircraft that you are going out in marketing or is it actually a lot of inbound demand coming to look to take some of your fleet?

We actually sold two aircraft from our portfolio. One of our oldest Boeing 737-700, which we sold to another smaller boutique lessor. And we sold a Boeing 767-300ER and then we also did a trade where we picked up a couple of 737-300s from one of our airline customers and immediately resold those aircraft at a gain.

So we sold two aircraft from our portfolio and two aircraft in trading activity and then, as John mentioned, we finally did receive the proceeds from the unfortunate loss of one of our Embraer 190s back in November last year.

We also had management fees and interest income and that is all basically consolidated in that one line.

Okay, thanks. And then, Greg mentioned that you reached your goal of 70% fixed rate on the debt side. Are your thoughts about funding going forward changing or do you think you will still kind of lead towards the (technical difficulty) markets given that rates are generally low overall right now?

No. We are very much sticking with the unsecured funding strategy, also keeping our 70/30 target for fixed versus floating, debt to equity at 2.5 to 1 and with a high degree of focus on secured debt targeting 90% of our debt portfolio of unsecured debt.

Yes, let me just add here -- actually this is relating to Helane's earlier question about how does this all stack up to the IPO. I would say that that is one area that is way ahead of our most optimistic thoughts that we ever had and went public is not only getting an investment grade credit rating this quickly, but switching largely to an all unsecured balance sheet and the success that we have had in the debt capital market.

So I just feel compelled to say that that is the one area that I think we have really felt quite good about and it has really exceeded all of our expectations when we went and from the time that we did our IPO.

Yes, we continue to see some of our competitors do large-scale secure transactions as we have stated before and it is a strong operating philosophy of Air Lease, is that we believe that the investment grade unsecured model gives us a lot more operating flexibility in deploying aircraft in different jurisdictions, moving airplanes around to different airlines. And not having -- being burdened by mortgages and local registrations and legal complexities that can slow down the efficiency of our operation.

Thank you.

Mike Linenberg, Deutsche Bank.

A couple of questions here. John, in the press release you are quoted as saying that you have added some aircraft to new customers with long leases attached. Can you give us a feel of what the length of the leases are and what --? How that compares to maybe a year or two years ago?

Yes. They are much more on the 12-year side, Mike. When we first started out in even our IPO typically single aisle aircraft were -- they are usually seven- to eight-year leases and twin aisles, 12 years.

But we have -- and you have seen this gradually in the lengthening out of our overall lease maturity profile now, a hair over seven years. We have actually been doing a lot of single aisle placements at 12 years. In fact some of our largest placements in China to the three large airlines that's in China have all been 12 years.

So I think it is a shared result of the demand versus the supply that one of the advantages we have been able to achieve is lengthening out our overall portfolio. So that was in the last 12 to 18 months, in fact, we have done probably more single aisle leases on 12 years then we have at seven to eight years.

This is Steve. We are also very conscious of our lease maturities. In other words, in any given year as we look down the road, seven, eight, nine, 10 years from now, we don't want to have a lot of aircraft in clusters coming off lease at the same time.

So we are going longer as John indicated and we are also managing very carefully that our lease maturity profile is a very gradual and manageable one going forward.

Okay, good. Then back to the gains on the four aircraft and then you had the insurance gain. If I look at the other revenue, it was up $14 million. Just to think about it from a modeling perspective, you basically said we were not going to see much in the second quarter as it related to gains. It was more of a second-half 2014 phenomenon.

What sort of percent of that other revenue maybe was tied to the gains on the four aircraft plus the insurance piece? I know you said it was a multimillion dollar gain. Just -- it could be rough numbers just to help us on modeling.

As you know we never comment on individual transactions unless they need a material (inaudible) threshold which none of these do. Including insurance (technical difficulty). So we are really -- we are not -- we don't comment any further as to the size and the magnitude. I don't know, Greg, if you have any other comments that you would like to offer up.

No. That's spot on, John.

Okay, fair enough. And on my last question, Steve, you talked about the five 777-300ERs, BA, Etihad, [AND], credit quality. They are up there, they are amongst the best from a capital market perspective.

That said, when you think about widebody versus narrowbody and how you think about credit profile, would you be more willing to -- at least with respect to narrowbody airplanes -- to maybe lower your standards maybe is not the right way to characterize it, but at least willing to look at lower credit profile carriers, given the fact that maybe it is just much easier to move narrowbodys than -- between customers -- than the larger airplanes given the switching costs. Just your thoughts on that.

Yes, I think that is a good point. I would have to say if you look at our total A320, 737, 800 portfolio, we do have a small number of airlines that probably Wall Street would not consider AAA credits.

But bear in mind that in some of the situations or most of those situations, we are able to command an above market lease rate with ample overhaul reserves and large cash security deposits. So I think we do sprinkle into our fleet some aircraft that maybe are a little more exotic airlines, but also very conscious that we don't want to have problems or defaults downstream. And certainly on the widebody we tend to focus much more on the very high quality intercontinental global network areas. But on the single aisle aircraft because of their mobility and ease of leasing them to -- in many cases over 100 airlines operate those types, we do sometimes take a little more risk, but a measured way and a very, very thoughtful way.

Great. Thanks.

Jamie Baker, JPMorgan.

Good afternoon. John, just a follow-up on the earlier topic of potentially going out as far as five years in terms of potential lease placements. When you have these discussions with an airline, what are your underlying assumptions as it relates to the future interest rate environment and might you begin engaging in any sort of interest-rate hedging in this regard?

Yes. The short answer is no, not really. Because as Steve alluded to in an early remark, we do have interest-rate protections on all of these forward placements. So just to give you an example, we agree with an airline that their lease rate is X, but that X is dependent upon a financial index. Now those financial indices may vary, it is a point of discussion with the airline whether it is a seven-year forward slot curve or 10-year treasury, but we pick some index that we agree upon and then we actually come up with a formula that for each basic point at which that index might exceed at delivery of the aircraft, where it was when we negotiated the deal, the lease rate goes up Y dollars. And by the way, let me add it is a one-way adjustment. The base floor is already set with the lease rate.

So, we are protected for our interest rates going forward because obviously at the delivery is when we fund the vast majority of the purchase price of the aircraft. So we are covered from an interest-rate side.

We are also covered under escalation. We pass on escalation all buyers of aircraft and multiyear contracts have an escalation base year as you probably know and we pass on dollar for dollar, formula for formula the airplane manufacturers' escalation index. It is a public sort of thing. It is a feature (multiple speakers) it is a very standard calculation. So that is also past.

So in terms of our margin, if you will, our forward margin protection, we believe that we have that built in. And then it gets down to the airline we do look out to the competitive landscape, how is the airline doing, what is its management? But how is it looking in the worldwide theater. How is their root development coming? Are there any alliances that look to the future? Who are their likely competitors?

And more importantly, when you get that far out, what aircraft is best suited to the route network? And it may be a bit simplistic, but you probably heard us say it before at industry conferences. We take a very operation airline-oriented approach. At the end of the day, we have to convince ourselves really of one thing and that is, will the airline make money with this specific aircraft.

At the end of the day here is what we found out after many, many years and various lease agreements and very good lawyers who write these lease agreements, one reality holds true. If the airline is making money with their aircraft, we get paid. If they are not making money with our aircraft, then who knows?

So we really focus upon the aircraft, specific aircraft type and when we are looking that far out, we are looking at where this airline is going with its route network and is this the right aircraft. So that is really I would say a huge focus of these long far forward placement outlooks that we are looking at right now.

Well and I appreciate that clarity and as a follow-up to that, are you actively engaged in any significant fleet planning discussions of any of your customers right now? And do you think that you have enough feed stock in terms of your delivery slots going out the curve or is there a pressing need to get more orders in? And I do apologize if you or Steve addressed this in the opening remarks. We were a little late dialing in.

No. The answer is yes. We are very actively involved with a number of customers and campaigns that far out and advising on fleet growth and aircraft types. So that is ongoing.

I think, look, we always continue to look at our orders and continue to do so as Steve indicated in his remarks. We are looking at the new generation aircraft, the 777X now from Boeing. Even the E2 Embraer jets, the A330 so-called neo that we are now looking at. So that is very much an ongoing process here at Air Lease Corp, Jamie, and as time and circumstances dictate, we are always looking to add additional incremental orders as we see fit and as we see that demand curve.

Yet within the sphere, the ultimate governance which is maintaining our investment grade rating, keeping our debt equity ratios in line and being able to very comfortably manage any further forward capital commitments.

Excellent. I appreciate it. Look forward to seeing you at the Investor Day next week.

Oh, and also, Jamie, if you missed the early part of our presentation that I did and Greg did, I believe it is available or will be available.

Oh, yes, no question. We will follow up on that. Thanks. I appreciate it, Steve.

Jason Arnold, RBC Capital Markets.

Good afternoon, gentlemen. I was curious if you could comment on third-party aircraft management opportunities out there that you are seeing at present?

We have a significant amount of ongoing activity. During the quarter we added a widebody Boeing aircraft which we manage for another institution. And currently there is ongoing activities and negotiations that would encompass additional aircraft that would be added to our managed fleet between now and the end of 2014.

So we are building that business and we are working with multiple financial institutions as well as just financial lessors that do not have the internal infrastructure to do really seeing and managing these assets internally. And that is all done on a fee basis.

Super. Okay, thanks for that. And another follow-up. I think, John, you had mentioned on the 15 ads for the second quarter, the 777s are going to be back half weighted, but is the remainder of the ads dispersed over the quarter?

No, the 15 are this quarter. Not at the end of the year. (multiple speakers) The 15 and both the two 777s and I would say the other 13 aircraft are more weighted towards the second half, right.

So we get one 777 that is going to British Airways toward the end of May and then we get another 777 new in June that is going to Air New Zealand. So they will be towards the latter part of the quarter.

Yes and those are the higher capital costs units (multiple speakers).

So starting in Q3 we will get the full quarterly rental stream of those aircraft, but this quarter we will only get a fractional part of their total rents because of the delivery dates.

Okay, super. I just wanted to know for my own purposes. That's great. Thanks for the color. Appreciate it.

John Godyn, Morgan Stanley.

Steve, on that last comment where you talked about the aircraft management business and conversations you are having, I am curious what the long-term growth outlook might be for that business. We see other leasing entities out there that manage hundreds of aircraft for other parties, you guys obviously have an extremely strong platform. I would imagine that you could grow it that big if you wanted to. Just some thoughts on that would be helpful. Thanks.

Well, our predominant business is really managing our own assets and that is where we can give the greatest value to our airline customers by offering them new technology aircraft, the most desirable airplane types and putting them out on long-term leases so they can make money and we can deliver superior results to our shareholders.

But since we have this internal talent pool, we have the infrastructure and we have the global airline relationships, it doesn't make sense for us to ramp up this level of activity with respect to managed aircraft. And we are doing it, we are engaged with a number of financial institutions. We are engaged with other parties that have the financial means, but do not have the depth of experience or knowledge about how to lease an aircraft out or how really to use the aircraft, or how to eventually dispose of the aircraft. And we are going to be retained and we are being retained more and more frequently in that function.

But it will be a supplemental activity. It will be very profitable. It does not require our use of capital and we use our existing platform or existing IT infrastructure in our existing talent that is already embedded in the Company.

That is very helpful. And just on a separate topic actually, as I reflect on what we hear here today and the fundamentals of the Company, consistent growth, consistent profitability, I wonder if you are -- if there is any opportunity for Air Lease to be added to an index, an equity index. That is not really a theme that a lot of the other lessors benefit from. Of course you are a bit different.

I am just curious and maybe this one is for Greg, but I am curious if there is any proactive conversations that you could have on that front.

No. Currently there's not any active initiatives to be included in any index.

Other than the [midcap].

Yes, those are just generally, they are usually market cap-driven as opposed to us reaching out. So it is certain sizes they consider you for. We are already included in the Russell indexes and I think you'll see as we continue to grow the business (multiple speakers) bond is in the index, but the equity side.

Fair enough. Thank you.

That is a good suggestion and we will explore what avenues are available to maybe get us included once we hit a threshold of whether it is $5 billion or whatever in market cap.

Thanks a lot.

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

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Good day, ladies and gentlemen, and welcome to the first-quarter 2014 Air Lease Corporation earnings conference call. My name is Jackie and I will be your coordinator for today. (Operator Instructions).

I would now like to turn the conference over to Mr. Ryan McKenna, Vice President. Please proceed, Sir.

Good afternoon, everyone, and welcome to Air Lease Corporation's first-quarter 2014 earnings call. This is Ryan McKenna, Vice President, and 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 2014 results. 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 8, 2014, 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, reviews, 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 8, 2014. 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 statement or information in light of new information or future events. 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 increased its dilutive EPS to $0.57 per share in the first quarter of 2014 compared with $0.38 in the first quarter of 2013 which is an increase of 50%. Our topline revenues for the first quarter of 2014 were $246 million versus $192 million in the first quarter of 2013, an increase of 28.3%.

Air Lease's pretax income in Q1 2014, which is an important measure that we use, was $94.7 million versus $61.7 million the prior year, a 53.6% increase year to year. This was achieved through our core leasing operation, our focused efforts on reducing our cost of funds as well as sales and trading activity.

We have a strong investment grade quality credit profile and Air Lease is soon crossing the threshold of having built a 200 aircraft owned portfolio and a $10 billion total asset quality balance sheet in the coming weeks. These operational and financial achievements place Air Lease at the top tier of aircraft lessors. Just a note, Air Lease is taking delivery of 15 new aircraft this second quarter of 2014 including six new Airbus A321-200s, two new Boeing 777-300ERs, four new Boeing 737-800s, and three new ATR 72-600s for a total of 15 aircraft.

Passenger traffic continues to meaningfully outpace global GDP growth and we are observing a rising demand for our new aircraft. IATA reported that passenger traffic for the first quarter of 2014 grew 5.6% versus 5.2% in the first quarter of 2013. We are keeping a watchful eye on statistics that could suggest any slowing future months, but we view this as a continuing positive sign for the overall health of the industry.

In addition to the traffic growth, we remain primarily focused on the demand generated by the replacement cycle of an increasing number of aging aircraft. ALC addressed some of this demand by topping all future orders for nine incremental aircraft during the first quarter with Boeing, Airbus, and ATR to meet the precise needs of our airline customers. As we look towards the Air Show in Farnborough this summer, we will closely evaluate the new technology aircraft from the manufacturers with laser focus on favorable economics to our customers and our shareholders.

We are currently evaluating a number of aircraft types, including future product offerings from Boeing on the new 777-9X from Airbus, and the potential of a new A330neo and from Embraer in Brazil, on their E2 next generation 190 and 195 aircraft. We have seen very strong demand for our A321neo aircraft and now I have concluded and announced the first leases on those aircraft with two different airlines.

We remain mindful of the currency and political risk that our customers face as we look beyond to the rest of 2014. Currently in our fleet we have not experienced any customer issues regarding currency fluctuation. However, we view the strength of the US dollar as a potential opportunity to acquire reasonably priced assets so increased volatility appears in emerging markets.

We are watching geopolitical events unfold in Russia and the Ukraine in Eastern Europe and think it is useful to mention that ILFC has minimal exposure to these regions both in terms of our current fleet and our forward order book.

And generally, we feel very good about our portfolio of aircraft, our airline customers, regional exposures and concentration limits. We believe that we have got the right balance. With these strong results in mind, Air Lease's Board of Directors decided yesterday that it was appropriate to continue our quarterly cash dividend of $0.03 per share per quarter. With our firmly contracted pipeline, our investment grade credit profile, ALC is well-positioned to thrive in this evolving landscape.

Now I would like to take the opportunity and turn this over to John Plueger, our President, Chief Operating Officer, member of our Board, who will further discuss our operations and strategic positioning.

Thanks, Steve. During the fourth quarter, we delivered five aircraft from our order book and sold two aircraft from our fleet, ending the quarter with 196 aircraft in our portfolio.

Now, Q1 has historically been a light quarter for deliveries and Q2 will pick up with the additional aircraft that Steve advised including two 777-300ERs. I would like to point out that those aircraft are delivering predominantly in the back half of the quarter. So the full impact of those leases will not be realized until subsequent quarters.

Regarding sales activity, we started off the year by selling two older aircraft from our fleet, plus two aircraft sold on a trading basis, each for a gain. We had been selling some of the few older aircraft in our fleet for the past two years, and I want to remind you we actually have very few older aircraft in our fleet. However, we anticipate very light aircraft sales for the next quarter.

As time passes and our fleet continues to grow, more aircraft in our fleet will reach the seven- to eight-year age range and become candidates for sale. As such, we anticipate more sales to occur in the second half of the year (technical difficulty). Demand from buyers of midlife aircraft is solid.

Also as we previewed to you last quarter, we did receive in Q1 the insurance proceeds from the fourth-quarter loss of our Embraer 190 and we do have a multimillion dollar gain from those proceeds included in other income for this quarter.

During the last earnings call, we indicated that we had concluded all of our new aircraft placements in 2014 and 2015, our focus shifting now to 2016 and beyond. Due to the incremental orders during the quarter, which we have now advised you of, we now have one incremental unit in 2015 that we will place shortly. I would like to re-emphasize that those -- that these orders were in response to continued customer demand.

Let me just comment that along the same line as the growing order backlog and lead time with airframe manufacturers, we also see a trend towards for lease placement further and further in the future. We now have airlines requesting quotations and leases on next-generation aircraft delivering in 2017 through 2019 and beyond. Many of these airlines have delayed too long ordering their own new generation equipment, thereby needing to obtain these aircraft from our order pipeline.

It provides us with an interesting dynamic as we decide exactly how far forward our lease placements should be. This is a good problem and speaks well for the strong, yet very manageable forward order book that ALC has set to be on a continued steady growth trajectory for the foreseeable future.

Before I turn this over to Greg Willis, just want to make a quick comment that we don't do often enough. And that is simply to thank all of the Air Lease team and employees for their dedicated and tireless efforts every single day to produce these good results for our shareholders.

So let me now turn this over to Greg Willis who will walk you through our financial profiles that we believe further differentiates ALC. Greg?

Thanks, John. Since the announcement of the 10-K, ALC has completed two significant financings. First, we opportunistically tapped the capital markets for a benchmarked $500 million senior unsecured bond priced at 3 7/8 maturing in 2021. This was an excellent transaction for the Company. We were able to tighten our spread to the Treasury benchmark materially from prior transactions, broadened the distribution of investment grade investors and extend the duration of our debt portfolio.

We believe there is substantially more room for spreads to tighten as our credit profile continues to strengthen.

Secondly, we were able to upsize and extend the maturity of our corporate unsecured revolver. We increased the size by $100 million to $2.1 billion priced at LIBOR plus 125 with no LIBOR floor now maturing in 2018. The extension of this facility has created a smooth maturity profile for the next seven years.

We remain extremely appreciative of the support of our globally diversified banking group.

Our strong cash flows during the quarter coupled with a light quarter of deliveries actually caused us to delever slightly to 2.3 times debt to equity. Our debt to equity ratio has quarterly cyclicality that matches our delivery stream but has no impact on our overall target of 2.5 to 1.

Our cost of funds remains steady during the quarter at 3.7%. We continue to make progress reducing the secured debt on our balance sheet now only 14% of total assets. This is extremely close to our stated target of 10% secured debt to total assets.

When looking at our debt portfolio, 77% of our debt is unsecured. Additionally, we have now reached a target of 70% fixed-rate debt that we stated as our goal when we founded the Company. We said that we would achieve this balance without using hedges or swaps and I am pleased to report that we have lived up to that commitment.

This concludes my review of the financing activities of the Company and I will 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). Moshe Orenbuch, Credit Suisse.

Those nine new orders, what happened to allow you to do that? Is that something that you think will open up? I mean are these things -- are these slots that you are trading with others? Can you talk a little bit about that?

No. They were direct ordered from Airbus, Boeing, and ATR that we have been discussing with them for some months and a few airlines moved there on direct orders around and were able to get some slots that we thought were beneficial for us and we had already targeted customers.

Well, it certainly sounds that way since you said you only had one of them still available. Any kind of ability to tell us about whether there is -- you think there would be more coming as the year goes on?

I don't think there will be anything in the short term. I mean, the order books are pretty booked up at both Airbus and Boeing. We do look for periodic opportunistic situations, but it is a pretty rare occurrence.

Got it. Thank you very much.

I just wanted to comment that we this is really nothing new from us. We have routinely on an opportunistic basis we have picked up incremental orders from manufacturers over the last couple of years including in 2011 and 2012. So it is just a matter of finding the right opportunities and making the stars align.

All right. Great, thanks so much.

John Godyn, Morgan Stanley.

John, you had some very interesting commentary about a willingness to lease forward through 2017 and 2019. I was hoping that you and Steve could perhaps elaborate on what you are hearing from customers there? Is that all replacement demand, is it partly a desire to grow as airlines look out that far? I mean they have been pretty profitable lately. Just elaborating would be very helpful.

Sure, happy to do that. Yes, it is primarily the replacement of aircraft. For example, I will just give you one example. We are working on a current project where we have our A350-900s delivering in 2019 and beyond. This will be for an operator that is currently phasing out the remainder of the A340 aircraft. So it is all of the above. But primarily replacement-driven.

And so I think the point we were simply trying to make is in many ways, our backlog, if you will, or our demand going out in the future is paralleling the large backlog and demand from the airplane manufacturers. And for us it is really a question of how far forward sitting here today do we decide to lease an aircraft? I mean do I go out five years, do I go out six? The world changes very quickly.

So it is a matter of judgment and a matter of our assessment of the stability of every individual customer we are talking about. But I think it is -- I think it bodes well and particularly bodes well with respect to our order book. These are basically precious commodities going forward and there are many airlines which have not yet ordered new technology, new generation aircraft, both on the twin aisle and the single aisle side. So as I said, it is a good problem to have.

I just want to add to John's comment that on these forward lease placements that are involving deliveries that are two, three, four, five years from now, we do build in some very appropriate financial adjustment mechanisms to protect Air Lease Corporation from interest rate fluctuations or any adverse event that may occur with the customer itself.

And that's very helpful. And, Steve, you mentioned A330neo. I was wondering if you had any initial thoughts that you would care to share.

Yes. We have had a lot of going back and forth with Airbus, with the engine manufacturers, with a number of airlines that have raised their hand as potential launch or co-launch customers for the airplane.

Basically, I think what Airbus is evaluating is a new generation of A330-200s and 300s with engines that are more current technology and are being currently devised or in operation. Derivatives of engines already in operation that would offer a double-digit increase in efficiency and fuel savings. And I think Airbus is looking at that very carefully as a possible alternative to the A350-800.

That's very helpful. Thanks a lot.

Helane Becker.

Hello, gentlemen. A question about the 196 and I think you mentioned that you would have over 200 aircraft by -- in short order. How does that compare with where you thought you would be when you did the IPO?

I think it is actually very close. I would say to within 15 to 20 airplanes of where we thought we would wind up.

Where you thought you would have like 185, 85 -- 180, 185 where you thought you would have 210 or 215? Which direction?

More like the 185.

Okay, all right. That's great. I'm sorry?

What we didn't forecast is two factors. We did not anticipate a stronger demand for new generation aircraft leasing from the airlines which is really part of this replacement cycle that John just talked about.

And secondly, we have enjoyed a lower rate of funding our portfolio, which in turn has enabled us to add more aircraft because our profit margins have been wider than what we originally anticipated back in 2010, 2011. So we have had the luxury of being able to absorb more aircraft into our fleet because the financial profile of our balance sheet has been stronger than what we originally projected.

Okay. That's actually really awesome to know. Thank you very much. And that is -- the only other question I really had and, John, you may have just answered it, too, is with regards to the 2017, 2019 deliveries in terms of the credit quality of the airlines.

How do you feel about the credit quality of the book now and the companies that are coming to you, are you happy with their credit quality as well? Or would you be in a position where you would say, no, we don't want to lease to you because we are concerned about your future?

Yes. I think Steve hit it on his remarks. We are very happy with the overall balance credit quality of our current portfolio and of our current customer base. So but clearly as we look forward out four, five, six years, that becomes even more critical because we are placing a longer forward bet with potential customers.

So I would say it is safe to say that to the extent that we are placing some of our newer technology aircraft now you have seen us announce some neo-placements recently and we will be announcing further high-technology placements in the coming quarters. We will be paying particular close attention to our assessment of each of these customers especially as you get out in the 2019, 2020 timeframe.

But we are very focused on our customer quality both in terms of operating integrity and financial capability. Just to give you a little example, we have five new Boeing 777-300ERs delivering this year. Two are going to British Airways on long-term leases. Two are going to Air New Zealand on long-term leases and one to Etihad Airways in the UAE.

So you can see that the credit quality and the solidity of these clients does give us the ability to sleep at night in terms of their ability to make their lease payments for many, many years to come.

Okay, great. Thank you very much.

Arren Cyganovich, Evercore.

On the aircraft that you sold in the quarter did you give any details about what types of aircraft those were? And are these aircraft that you are going out in marketing or is it actually a lot of inbound demand coming to look to take some of your fleet?

We actually sold two aircraft from our portfolio. One of our oldest Boeing 737-700, which we sold to another smaller boutique lessor. And we sold a Boeing 767-300ER and then we also did a trade where we picked up a couple of 737-300s from one of our airline customers and immediately resold those aircraft at a gain.

So we sold two aircraft from our portfolio and two aircraft in trading activity and then, as John mentioned, we finally did receive the proceeds from the unfortunate loss of one of our Embraer 190s back in November last year.

We also had management fees and interest income and that is all basically consolidated in that one line.

Okay, thanks. And then, Greg mentioned that you reached your goal of 70% fixed rate on the debt side. Are your thoughts about funding going forward changing or do you think you will still kind of lead towards the (technical difficulty) markets given that rates are generally low overall right now?

No. We are very much sticking with the unsecured funding strategy, also keeping our 70/30 target for fixed versus floating, debt to equity at 2.5 to 1 and with a high degree of focus on secured debt targeting 90% of our debt portfolio of unsecured debt.

Yes, let me just add here -- actually this is relating to Helane's earlier question about how does this all stack up to the IPO. I would say that that is one area that is way ahead of our most optimistic thoughts that we ever had and went public is not only getting an investment grade credit rating this quickly, but switching largely to an all unsecured balance sheet and the success that we have had in the debt capital market.

So I just feel compelled to say that that is the one area that I think we have really felt quite good about and it has really exceeded all of our expectations when we went and from the time that we did our IPO.

Yes, we continue to see some of our competitors do large-scale secure transactions as we have stated before and it is a strong operating philosophy of Air Lease, is that we believe that the investment grade unsecured model gives us a lot more operating flexibility in deploying aircraft in different jurisdictions, moving airplanes around to different airlines. And not having -- being burdened by mortgages and local registrations and legal complexities that can slow down the efficiency of our operation.

Thank you.

Mike Linenberg, Deutsche Bank.

A couple of questions here. John, in the press release you are quoted as saying that you have added some aircraft to new customers with long leases attached. Can you give us a feel of what the length of the leases are and what --? How that compares to maybe a year or two years ago?

Yes. They are much more on the 12-year side, Mike. When we first started out in even our IPO typically single aisle aircraft were -- they are usually seven- to eight-year leases and twin aisles, 12 years.

But we have -- and you have seen this gradually in the lengthening out of our overall lease maturity profile now, a hair over seven years. We have actually been doing a lot of single aisle placements at 12 years. In fact some of our largest placements in China to the three large airlines that's in China have all been 12 years.

So I think it is a shared result of the demand versus the supply that one of the advantages we have been able to achieve is lengthening out our overall portfolio. So that was in the last 12 to 18 months, in fact, we have done probably more single aisle leases on 12 years then we have at seven to eight years.

This is Steve. We are also very conscious of our lease maturities. In other words, in any given year as we look down the road, seven, eight, nine, 10 years from now, we don't want to have a lot of aircraft in clusters coming off lease at the same time.

So we are going longer as John indicated and we are also managing very carefully that our lease maturity profile is a very gradual and manageable one going forward.

Okay, good. Then back to the gains on the four aircraft and then you had the insurance gain. If I look at the other revenue, it was up $14 million. Just to think about it from a modeling perspective, you basically said we were not going to see much in the second quarter as it related to gains. It was more of a second-half 2014 phenomenon.

What sort of percent of that other revenue maybe was tied to the gains on the four aircraft plus the insurance piece? I know you said it was a multimillion dollar gain. Just -- it could be rough numbers just to help us on modeling.

As you know we never comment on individual transactions unless they need a material (inaudible) threshold which none of these do. Including insurance (technical difficulty). So we are really -- we are not -- we don't comment any further as to the size and the magnitude. I don't know, Greg, if you have any other comments that you would like to offer up.

No. That's spot on, John.

Okay, fair enough. And on my last question, Steve, you talked about the five 777-300ERs, BA, Etihad, [AND], credit quality. They are up there, they are amongst the best from a capital market perspective.

That said, when you think about widebody versus narrowbody and how you think about credit profile, would you be more willing to -- at least with respect to narrowbody airplanes -- to maybe lower your standards maybe is not the right way to characterize it, but at least willing to look at lower credit profile carriers, given the fact that maybe it is just much easier to move narrowbodys than -- between customers -- than the larger airplanes given the switching costs. Just your thoughts on that.

Yes, I think that is a good point. I would have to say if you look at our total A320, 737, 800 portfolio, we do have a small number of airlines that probably Wall Street would not consider AAA credits.

But bear in mind that in some of the situations or most of those situations, we are able to command an above market lease rate with ample overhaul reserves and large cash security deposits. So I think we do sprinkle into our fleet some aircraft that maybe are a little more exotic airlines, but also very conscious that we don't want to have problems or defaults downstream. And certainly on the widebody we tend to focus much more on the very high quality intercontinental global network areas. But on the single aisle aircraft because of their mobility and ease of leasing them to -- in many cases over 100 airlines operate those types, we do sometimes take a little more risk, but a measured way and a very, very thoughtful way.

Great. Thanks.

Jamie Baker, JPMorgan.

Good afternoon. John, just a follow-up on the earlier topic of potentially going out as far as five years in terms of potential lease placements. When you have these discussions with an airline, what are your underlying assumptions as it relates to the future interest rate environment and might you begin engaging in any sort of interest-rate hedging in this regard?

Yes. The short answer is no, not really. Because as Steve alluded to in an early remark, we do have interest-rate protections on all of these forward placements. So just to give you an example, we agree with an airline that their lease rate is X, but that X is dependent upon a financial index. Now those financial indices may vary, it is a point of discussion with the airline whether it is a seven-year forward slot curve or 10-year treasury, but we pick some index that we agree upon and then we actually come up with a formula that for each basic point at which that index might exceed at delivery of the aircraft, where it was when we negotiated the deal, the lease rate goes up Y dollars. And by the way, let me add it is a one-way adjustment. The base floor is already set with the lease rate.

So, we are protected for our interest rates going forward because obviously at the delivery is when we fund the vast majority of the purchase price of the aircraft. So we are covered from an interest-rate side.

We are also covered under escalation. We pass on escalation all buyers of aircraft and multiyear contracts have an escalation base year as you probably know and we pass on dollar for dollar, formula for formula the airplane manufacturers escalation index. It is a public sort of thing. It is a feature (multiple speakers) it is a very standard calculation. So that is also past.

So in terms of our margin, if you will, our forward margin protection, we believe that we have that built in. And then it gets down to the airline we do look out to the competitive landscape, how is the airline doing, what is its management? But how is it looking in the worldwide theater. How is their root development coming? Are there any alliances that look to the future? Who are their likely competitors?

And more importantly, when you get that far out, what aircraft is best suited to the route network? And it may be a bit simplistic, but you probably heard us say it before at industry conferences. We take a very operation airline-oriented approach. At the end of the day, we have to convince ourselves really of one thing and that is, will the airline make money with this specific aircraft.

At the end of the day here is what we found out after many, many years and various lease agreements and very good lawyers who write these lease agreements, one reality holds true. If the airline is making money with their aircraft, we get paid. If they are not making money with our aircraft, then who knows?

So we really focus upon the aircraft, specific aircraft type and when we are looking that far out, we are looking at where this airline is going with its route network and is this the right aircraft. So that is really I would say a huge focus of these long far forward placement outlooks that we are looking at right now.

Well and I appreciate that clarity and as a follow-up to that, are you actively engaged in any significant fleet planning discussions of any of your customers right now? And do you think that you have enough feed stock in terms of your delivery slots going out the curve or is there a pressing need to get more orders in? And I do apologize if you or Steve addressed this in the opening remarks. We were a little late dialing in.

No. The answer is yes. We are very actively involved with a number of customers and campaigns that far out and advising on fleet growth and aircraft types. So that is ongoing.

I think, look, we always continue to look at our orders and continue to do so as Steve indicated in his remarks. We are looking at the new generation aircraft, the 777X now from Boeing. Even the E2 Embraer jets, the A330 so-called neo that we are now looking at. So that is very much an ongoing process here at Air Lease Corp, Jamie, and as time and circumstances dictate, we are always looking to add additional incremental orders as we see fit and as we see that demand curve.

Yet within the sphere, the ultimate governance which is maintaining our investment grade rating, keeping our debt equity ratios in line and being able to very comfortably manage any further forward capital commitments.

Excellent. I appreciate it. Look forward to seeing you at the Investor Day next week.

Oh, and also, Jamie, if you missed the early part of our presentation that I did and Greg did, I believe it is available or will be available.

Oh, yes, no question. We will follow up on that. Thanks. I appreciate it, Steve.

Jason Arnold, RBC Capital Markets.

Good afternoon, gentlemen. I was curious if you could comment on third-party aircraft management opportunities out there that you are seeing at present?

We have a significant amount of ongoing activity. During the quarter we added a widebody Boeing aircraft which we manage for another institution. And currently there is ongoing activities and negotiations that would encompass additional aircraft that would be added to our managed fleet between now and the end of 2014.

So we are building that business and we are working with multiple financial institutions as well as just financial lessors that do not have the internal infrastructure to do really seeing and managing these assets internally. And that is all done on a fee basis.

Super. Okay, thanks for that. And another follow-up. I think, John, you had mentioned on the 15 ads for the second quarter, the 777s are going to be back half weighted, but is the remainder of the ads dispersed over the quarter?

No, the 15 are this quarter. Not at the end of the year. (multiple speakers) The 15 and both the two 777s and I would say the other 13 aircraft are more weighted towards the second half, right.

So we get one 777 that is going to British Airways toward the end of May and then we get another 777 new in June that is going to Air New Zealand. So they will be towards the latter part of the quarter.

Yes and those are the higher capital costs units (multiple speakers).

So starting in Q3 we will get the full quarterly rental stream of those aircraft, but this quarter we will only get a fractional part of their total rents because of the delivery dates.

Okay, super. I just wanted to know for my own purposes. That's great. Thanks for the color. Appreciate it.

John Godyn, Morgan Stanley.

Steve, on that last comment where you talked about the aircraft management business and conversations you are having, I am curious what the long-term growth outlook might be for that business. We see other leasing entities out there that manage hundreds of aircraft for other parties, you guys obviously have an extremely strong platform. I would imagine that you could grow it that big if you wanted to. Just some thoughts on that would be helpful. Thanks.

Well, our predominant business is really managing our own assets and that is where we can give the greatest value to our airline customers by offering them new technology aircraft, the most desirable airplane types and putting them out on long-term leases so they can make money and we can deliver superior results to our shareholders.

But since we have this internal talent pool, we have the infrastructure and we have the global airline relationships, it doesn't make sense for us to ramp up this level of activity with respect to managed aircraft. And we are doing it, we are engaged with a number of financial institutions. We are engaged with other parties that have the financial means, but do not have the depth of experience or knowledge about how to lease an aircraft out or how really to use the aircraft, or how to eventually dispose of the aircraft. And we are going to be retained and we are being retained more and more frequently in that function.

But it will be a supplemental activity. It will be very profitable. It does not require our use of capital and we use our existing platform or existing IT infrastructure in our existing talent that is already embedded in the Company.

That is very helpful. And just on a separate topic actually, as I reflect on what we hear here today and the fundamentals of the Company, consistent growth, consistent profitability, I wonder if you are -- if there is any opportunity for Air Lease to be added to an index, an equity index. That is not really a theme that a lot of the other lessors benefit from. Of course you are a bit different.

I am just curious and maybe this one is for Greg, but I am curious if there is any proactive conversations that you could have on that front.

No. Currently there's not any active initiatives to be included in any index.

Other than the [midcap].

Yes, those are just generally, they are usually market cap-driven as opposed to us reaching out. So it is certain sizes they consider you for. We are already included in the Russell indexes and I think you'll see as we continue to grow the business (multiple speakers) bond is in the index, but the equity side.

Fair enough. Thank you.

That is a good suggestion and we will explore what avenues are available to maybe get us included once we hit a threshold of whether it is $5 billion or whatever in market cap.

Thanks a lot.

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