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Air Lease (NYSE:AL)Q4

Q4 2012 Earnings Call

February 28, 2013 4:30 pm ET

Executives

Ryan McKenna - Assistant Vice President of Strategic Planning & Investor Relations

Steven F. Udvar-Hazy - Founder, Chairman and Chief Executive Officer

John L. Plueger - President, Chief Operating Officer and Director

Gregory B. Willis - Chief Financial Officer and Senior Vice President

Analysts

John D. Godyn - Morgan Stanley, Research Division

Arren Cyganovich - Evercore Partners Inc., Research Division

Richa Talwar - Deutsche Bank AG, Research Division

David E. Fintzen - Barclays Capital, Research Division

Scott Valentin - FBR Capital Markets & Co., Research Division

Glenn D. Engel - BofA Merrill Lynch, Research Division

Mark Streeter - JP Morgan Chase & Co, Research Division

Howard Goldberg

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2012 Air Lease Corp. Earnings Conference Call. My name is Allyson, and I'll be your operator today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd now like to turn the call over to Mr. Ryan McKenna, Head of Strategic Planning and Investor Relations. Please proceed, sir.

Ryan McKenna

Thank you very much. Good afternoon, everyone, and welcome to Air Lease Corporation's Fourth Quarter 2012 Earnings Call. This is Ryan McKenna, Assistant Vice President, Strategic Planning and Investor Relations. I'm joined this afternoon by Steve Hazy, our Chairman and Chief Executive Officer; John Plueger, our President and Chief Operating Officer; and Greg Willis, our Senior Vice President and Chief Financial Officer.

Earlier today, we published our fourth quarter results for fiscal year 2012. A copy of our earnings release is available on the Investors section of our website at www.airleasecorp.com. This conference call is being webcast and recorded today, Thursday, February 28, 2013, and the webcast will be available for replay on our website. [Operator Instructions]

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, February 28, 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 Corporation assumes no obligation to update any forward-looking statements or information in light of new information or future events.

In addition, certain financial measures we will use during this call, such as adjusted EBITDA and adjusted net income, are non-GAAP measures and have been adjusted to exclude charges relating to amortization of discounts and debt issuance costs and stock-based compensation expense, among other charges. A description of our reasons for utilizing these non-GAAP measures, as well as our definition of them and their reconciliation to corresponding GAAP measures, can be found in the earnings release we issued today. This release can be found in both the Investors and Press section of our website at www.airleasecorp.com. Unauthorized recording of this conference call is not permitted.

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

Steven F. Udvar-Hazy

Thanks, Ryan. Ladies and gentlemen, good afternoon, and thank you for joining the ALC call today. I'm very pleased to report that Air Lease increased its EPS by 58% in the fourth quarter of 2012 over 2011's fourth quarter results. We recorded a 117% increase for the full year 2012 EPS versus 2011 EPS, continuing the execution of our strong growth plan. I think these numbers validate the excellent performance of the company in 2012. We built a fleet of the highest quality assets with excellent airline customers and that positioned the company for future [indiscernible] .

These factors have distinguished us from our publicly traded peers. Owing to the strong financial and operating results of ALC, which exceeded our expectations, our Board of Directors has authorized the company's first quarterly cash dividend to authorize common stock as part of a new cash dividend policy. This modest dividend of $0.025 per share is an important step in the evolution of our company and 1 that will allow for us to continue our strong growth. We believe that this action will enhance shareholder returns and broaden our investor base to include those funds, retail investors and institutional investors that focus primarily on dividend-paying stock, a wider shareholder base and a stable yet growing equity price are good for all of the stakeholders in ALC's capital structure.

Based on our assessment of growing demand, we have now reached agreement with the Boeing company for the additional purchase of 10 new Boeing 777-300ERs. 9 of which, we'll deliver in 2014 and the 10th aircraft in the first quarter of 2016. In February this year, we also concluded a milestone purchase agreement with Airbus for 25 firm plus 5 option Airbus A350-900s and 1000 aircraft. In addition to our existing order for 5 777-300ERs and our existing fleet of 7 777s, the new order for the 10 777-300ERs will bring our 777 portfolio up to 22 aircraft, and with these airplane additions, we'll be able to offer our customers high-quality options when selecting lease content for their twin-aisle fleets of tomorrow.

On the narrowbody side, during the fourth quarter, we exercised the remaining 14 A321neo options that were available from our purchase agreement with Airbus, which was announced at the Le Bourget Airshow in 2011. We announced also our launch order for 75 plus 25 reconfirmable 737 MAX aircraft at the Farnborough Airshow last summer and had just recently confirmed 5 of those option aircraft. These reconfirmations make ALC Boeing's largest leasing customer for the new family of the Boeing 737 MAX.

With this order activity concluded, we now control a very substantial order book of the most highly sought after types. This pipeline allows us to strategically control our customer regional concentrations by signing agreements with airlines many years into the future. We believe that our clearly defined growth strategy allows both debt and equity investors excellent and positive revenue visibility many years into the future when developing their forecast and estimates, and we foresee no need to raise incremental equity to fund all of these deliveries in our growth plan.

Now turning our attention to that state of the industry as a whole. While the global economy faced broad-based challenges and headwinds in 2012, the airline industry proved resilient. Despite negative predictions at the beginning of 2012, passenger traffic in the airline industry both grew globally and even in Europe, grew at a healthy 5.3% for the full year according to the International Air Transport Association. We believe the growth of passenger traffic that occurred in 2012, despite these headwinds, is further indication and demonstration that the current-generation jets will likely not be retired early, as airlines need all of these lift to support sustained long-term demand and passenger air travel.

Consolidation continues amongst airlines, most notably the merger of American Airlines and USAir, which was recently announced. We think that this trend will continue on a global scale and is a productive step as airlines seek to further rationalize and consolidate their cost structures and improve industry-wide profitability and cost-level economics. We remain optimistic about our growth opportunities at Air Lease and the increased demand for our leased aircraft.

Now john Plueger, our President and Chief Operating Officer, will expand upon ALC's results and strategic positioning. John?

John L. Plueger

Okay. Thanks, Steve. As we've stated on prior calls, we choose to place our new aircraft with ample lead time, locking in attractive lease rates on long-term contracts. Then, we're able to pursue opportunistic transactions that will further enhance our results. So during Q4, we executed the strategy and took delivery of 11 aircraft from our new order pipeline and acquired 3 incremental planes, finishing the quarter with 155 aircraft across a diverse and balanced operator base of 69 airlines spread over 40 countries. Our average fleet age remains very low at 3.5 years at the end of Q4, with a very healthy average 6.8 years remaining on our leases. In 2013, our Q1 deliveries will be modest, and for the remaining 3 quarters of the year, we expect our pipeline will deliver more evenly than it did in 2012.

During the fourth quarter, we profitably sold the first aircraft out of our fleet, an A320, with a gain included in other income. We also navigated the insolvency of one of our customers, XL Germany, who's operating one 737-800 from our fleet. And working with their management proactively, we were able to remove our aircraft and place it with another airline profitably prior to their insolvency filing. We had multiple customers lined up for the aircraft at satisfactory lease rates. Our business model of acquiring aircraft types that are highly in demand and holding cash security deposits and maintenance reserves proved itself in these situations. Outside of XL Germany, our lessees continue to perform well, and we have no significant concerns.

During the fourth quarter, ALC observed generally stable lease demand for our new advanced technology aircraft with increasing demand for widebody aircraft as Q4 progressed. A320 lease rates are affirming but still below where they need to be. Today, we are emerging from the winter season in the northern hemisphere without major headline-grabbing bankruptcies that have occurred in past years. Load factors have held up with capacity being better controlled and managed than historically. Our financing rates continue to improve, and lease rates are in line with our expectation, which have resulted in ALC's profitability continuing to exceed our internal plan. Our long-term leases generate stable, multi-year cash flows, which allows for consistent profit generation through the cycles.

Our success in securing forward lease placements of new aircraft has continued, and we've responded by increasing our order book as Steve has discussed earlier. Further, we work with manufactures to accelerate certain delivery positions to meet the needs of our customers. When compared with our pipeline at the end of Q3, we have added 2 additional aircraft for delivery in 2013 for a total of 34 planes, which are 100% placed. In 2014, we now have 7 additional aircraft delivering for a total of 34 planes, of which we are 91.2% placed. And in 2015, we've added 5 incremental aircraft for a total of 31 deliveries that are 48.4% placed.

Now let me make 2 points here: First, as we order more aircraft to enhance our growth in the 2014 time frame and beyond, the percentage placement for each year will fluctuate downward until these new positions are placed; Second, although we have spoken about our widebody orders that we placed in the first quarter of 2013, our overall fleet mix target will remain at about 70% to 75% narrowbody and 25% to 30% widebody.

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

Gregory B. Willis

Thank you, John. During the fourth quarter our revenues grew by more than 50% to $190 million, and our revenue nearly doubled from the prior year to $656 million with our pretax margin increasing to 31.1% for the year. This translated into EPS more than doubling over the prior year. We accomplished this by deploying over $2 billion in capital during the year and growing our fleet by a net 53 aircraft. During the year, we executed numerous capital market and bank transactions that have allowed us to raise over $3 billion in the debt capital -- in debt capital and constructed a debt portfolio with a low composite cost of funds of 3.94% while being 60% unsecured. This strategy provides our management team with operational flexibility that translates into a competitive advantage for ALC in the marketplace.

At the end of January, we launched our first debt capital markets transaction in 2013, raising an additional $400 million in unsecured debt. Investors have distinguished ALC from market aerospace on the high-quality aircraft in our fleet and our clearly defined growth strategy, which allowed us to price the 7-year note at 4.75%. A key aspect of our financing strategy is that we look to opportunistically tap the market to maintain a high level of liquidity while minimizing interest expense. This provides us with a financial strength to optimize the funding of our book and to capitalize on attractive 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 finance perspective to secure long-term unsecured financing at such low rates. we continue to execute on our plan to modestly increase our debt equity ratio but not to exceed 2.5 to 1, and our SG&A will continue to decrease as a percentage of total revenue.

This concludes my review of the financial performance of the company, and I will now turn it back to Ryan. Thank you.

Ryan McKenna

That concludes management's remarks. For the question-and-answer session, each participant will be allowed one question and one follow-up. I'd like to hand the call over to the operator for those questions.

Question-and-Answer Session

Operator

[Operator Instructions]

Steven F. Udvar-Hazy

We'd also ask that you identify your name and the firm that you're with.

Ryan McKenna

Operator, are you going to hand the call over to the first question?

Operator

Your first question comes from of John Godyn of Morgan Stanley.

John D. Godyn - Morgan Stanley, Research Division

It's John Godyn at Morgan Stanley. Your -- Steven and John, I just first want to ask about the dividend policy. I think it was kind of an interesting move. If you could just help us think about how you think about capital allocation on a go-forward basis and the dividend policy versus buyback. Did buyback sort of come up in the thought process? I'm sure they did. [indiscernible] ...

Steven F. Udvar-Hazy

Yes. We carefully evaluated the most optimal capital strategy going forward. We have a pretty aggressive and strong capital expenditure plan that encompasses now 325 new aircraft over the next 10 years. In light of that, we wanted to minimize the amount of liquidity that we would utilize for this purpose, so a shareholder buyback does not really work for us because we believe we can perform much better by deploying the capital we have and reinvesting our earnings in growing our business. And I think that's the best way to reward our shareholders. The rationale for the dividend arose from the fact that a lot of our institutional investors and a significant amount of retail demand is based on companies that pay a dividend. We have a lot of investors that have buckets within their investment portfolios that are allocated to dividend-paying stocks, so we felt the best way to address that without hurting the cash flow of the company going forward is to have a small modest dividend but focus on growing our earnings and growing our share value. And this initial stock represents less than 5% of our earnings, so $10 million in 2013, versus -- we earned $200 million plus in pretax income in 2012. So you can see it's a very small payout ratio, but what it does is increase of the catchment area for investors to come into Air Lease. And I think that's good for all shareholders.

John D. Godyn - Morgan Stanley, Research Division

And just as you think about the size of the dividend, as you mentioned, it is a bit small versus net income. Is this something that we should see you grow over time? And do you have any sense -- can you put any boundaries on sort of where it could go?

John L. Plueger

This is John. Look, this is up to our Board of Directors. We're not making a forecast of future dividends or increases or anything else like that. But in line with Steve's comments, the purpose here is really to provide a small incremental return to shareholders or mostly to expand our shareholder base. So as we move forward, we don't really offer any forward guidance on future dividends or increases, but suffice to say that dividends at this level on a regular basis are probably fair game for the future. And as we go into the future, further on, a year or so now -- from now, we may slightly increase that, but that 's going to be -- it's going to be primarily up to our board's decision.

Steven F. Udvar-Hazy

Yes. We wanted to start on the modest level, and that gives us the capacity that the company continues to outperform on the earnings side and developing our overall asset base. It gives us that window to increase dividends in the future so long as the company is performing at or beyond our expectations and plans.

Operator

Okay, we'll move on to the next question for you. Our next question comes from the line of Arren Cyganovich.

Arren Cyganovich - Evercore Partners Inc., Research Division

I just wanted to make a clarification on the -- I believe you said you didn't believe that you're going to have to make any equity issuance for the -- I think it's now $23.4 billion of committed aircraft purchases. I want to kind of understand how you get there over time. I know -- I understand the equity will increase, which -- should we expect an increased amount of aircraft portfolio sales to help reach that growth?

John L. Plueger

That's correct. And also, let me point out, Arren, that -- and Greg will correct me if I'm wrong here. Standing here today, if you take all of our firm lease agreements that we have both on the aircraft that are in our fleet and the aircraft that we have signed forward lease commitments on, the -- we've got now approximately $11.4 billion of firmly contracted cash flows. So we take that into account going forward and matching our debt maturities with our capital expenditures and the 5-year plan that our board has most recently viewed out. Greg, do you want to further comment?

Gregory B. Willis

Yes, just, Arren, I'd like to point that, that $23 billion is over a 10-year period, so you really have to factor in the cash flows that the aircraft will generate themselves, which will then be reinvested in the company to help make those commitments.

Steven F. Udvar-Hazy

Yes. We did an extension of our forecast out to 10 years to make sure that we stay low within the boundaries of 2 to 2.5 leverage ratio on the outside, and we accomplished that by reinvesting at least 90% of our retained earnings back into the company. Also, we do not have a tax liability at this time because we reinvest in new aircraft, so we essentially defer any income taxes due. So all that funding is available to invest in new aircraft, so we carefully crafted this long-term investment strategy keeping in mind the goal that we don't want to raise any more equity to dilute our existing shareholders. We want to build existing shareholders -- reward them with a value appreciation resulting from our growing profitability.

Arren Cyganovich - Evercore Partners Inc., Research Division

Okay. That's helpful. And then just as a quick follow-up, do you have the amount of the gain that you had on the A320 sale?

John L. Plueger

We don't [indiscernible] ...

Steven F. Udvar-Hazy

That's lumped into other income. There was actually another -- a spare engine that we sold and we had some other management fees. Greg can give you the exact amount for the other income items for 2012. Greg, do you have that information handy now?

Gregory B. Willis

Yes. We recorded a total of $10 million of other income, and we haven't broken out the individual gains.

John L. Plueger

We don't break out [indiscernible] ...

Steven F. Udvar-Hazy

That includes the disposition of the A320, and so we look forward to additional aircraft sales in the future. Obviously, right now our focus is on building our portfolio, building our revenue base, building our fleet, but as the company continues to grow, the sale of used aircraft will become an important component of generating additional earnings, as well as cash flow that we can reinvest in the business.

Operator

And your next question now again comes from Mike Linenberg of Deutsche Bank.

Richa Talwar - Deutsche Bank AG, Research Division

This is Richa Talwar asking some questions on Mike's behalf. First, I wanted to hear your views regarding future growth opportunities, particularly in the sale leaseback market. Some of your competitors recently expressed optimism about upcoming opportunities considering the record quarters placed in 2010 and 2011, and those that -- they start to deliver this year, and I wanted to hear how large of an opportunity you think that is to add business outside of your current order book and by way of sale leasebacks.

John L. Plueger

Just to comment -- this is John. The sale leaseback is not our business model, and we don't look to that business segment for any meaningful growth in our future. We have purchased opportunistic transaction. We've done sale leasebacks, and we continue -- we'll find them here and there as we talk to different airline customers. But I would say for Air Lease, it is not a main factor in our profitability plan going forward.

Steven F. Udvar-Hazy

It's very difficult to achieve the type of profit margins that we have at Air Lease in the operating lease business to the sale leaseback model. It's very difficult to sustain a 30% plus profit margin because it's such a competitive funding landscape. The large sophisticated airlines usually bid these out. It's an auction process, and it's strictly based on pricing. And so we're not going to get involved in a race to the bottom. There's plenty of other lessors that can participate in that spectrum of the market. It is a growth market. There's a significant amount of financing that has to be done through sale leasebacks, but Air Lease is not focused on that business. That's not our strength, and that's not where we can maximize shareholder value.

Richa Talwar - Deutsche Bank AG, Research Division

That was helpful color. And then my second question is on opportunities you're seeing in the more mature markets. You commented on potential U.S. Airways-American merger, and I was thinking about the need for fleet replacement across the industry. What are your views on current opportunities in more mature markets specifically?

Steven F. Udvar-Hazy

Generally, with this consolidation, we work very closely with the airlines that are coming together in the new marriage, and we work with them on their fleet-planning alternatives. And usually, it involves a rationalizing of the fleet, reducing the number of fleet types, disposing of obsolete aircraft or airplane types that don't fit in to the new strategy of the combined carrier. And so there will be opportunities for Air Lease to provide our aircraft from our order book to these new consolidated carriers on a very efficient basis. And those are opportunities that we will pursue both domestically and with international carriers.

Operator

And your next question comes from David Fintzen of Barclays.

David E. Fintzen - Barclays Capital, Research Division

It's Dave Fintzen from Barclays. I'm curious -- you guys have mentioned a lot about being opportunistic. I'm curious how you're thinking about the sort of the lessors are on classics on the 73 and the 320 side, particularly given some of the headlines I'm seeing and maybe at Delta or Ryanair booking opportunistically. Is that an opportunity? Or is there too much residual risk that you don't really want to get too aggressive there?

John L. Plueger

No, I think it is an opportunity. Throughout our management careers, we've actually benefited from purchasing aircraft at reasonably -- pretty healthy discounts as they get to the end of their production life, and we've done well with those aircraft. So to the extent that we believe that pricing is attractive enough to overcome any residual value concerns, historically, as a management team, we have acted upon it. And as you've heard in our remarks earlier, we have accelerated positions forward, and that creates for us -- when we accelerate a position forward, that creates basically another hole that we can fill in later should Airbus or Boeing have any more availability to give to us in that slot. So I think we're not afraid of it. We actually have exploited it in the past successfully, and if we see those opportunities, we'll continue to do so.

Steven F. Udvar-Hazy

But we are very mindful of the average age of our fleet, and we don't want to do anything that would, in a significant way, dilute the youth of our fleet and the competitive position of our portfolio. So our primary focus, for all of you listening in, is the new aircraft. That's where we're the most competitive. We're at the leading edge. We work with the major airlines of the world in their fleet planning. We're there holding hands with them, and that's really our strength. From time to time, we will look at some older planes for trade-ins against new airplanes. But that's sort of a supplementary part of our business. It's not our mainline business.

David E. Fintzen - Barclays Capital, Research Division

Okay. That's very helpful. I appreciate that. And just a little follow-up on the 320 sale. You mentioned sort of that selling aircraft will become a part of the model, and is that a way to think about this? Or was there something specific that you saw in this transaction that made it more of a one-off?

Steven F. Udvar-Hazy

No, I think it's part of our ongoing strategy that we will be disposing of aircraft to balance and rebalance our portfolio, and if we can make a gain on a sale that's greater than the net present value of the earnings of a future lease stream, we're going to exercise that option and sell the aircraft, generate liquidity that we can reinvest in new aircraft. And that's, we believe, the best route to maximizing shareholder value.

John L. Plueger

David, let me just remind we've often told investors and shareholders and that you really have to do 2 things to keep your fleet young: One, is you got to keep buying new airplanes; and 2, you got to sell the airplanes as they get a little bit older. So that's very much a core of our business model.

Operator

And your next question comes from Scott Valentin of FBR.

Scott Valentin - FBR Capital Markets & Co., Research Division

Just a quick question in terms of the plane you took back from XL. Is that -- has that been released at a comparable rate? Or have you disclosed what the -- I assume it's similar rate but...

Steven F. Udvar-Hazy

It's been leased a longer lease than the one we had originally. It's a longer term with this particular lessee, and the rates aren't market levels, which are very good for 737-800s.

Scott Valentin - FBR Capital Markets & Co., Research Division

Okay, okay. And then just maybe a bigger-picture question, the banks have been entering the space and just wondering if you have any concern given that the cost of capital advantage over some of the independent lessors, if there's any risk there that they drive down pricing in an effort to gain market share.

Steven F. Udvar-Hazy

None of the other lessors have the pipeline of new aircraft that we have. We believe that our relationships with the airlines and the decision makers with those airlines is second to none. We're not really seeing a lot of competition in most of the segments of our activities. I'll give you an example. We just signed a 12-year lease on 2 brand-new 777-300ERs with Air New Zealand, which will replace their last 2 Boeing 747s. We have no competition from any lessor. We were the only game in town, and it's as a result of our close relationship with the airline and the fact that we had the right airplane at the right time on the right terms.

Operator

And your next question comes from the line of Glenn Engel of Bank of America.

Glenn D. Engel - BofA Merrill Lynch, Research Division

A couple of questions, please. One, in your rentals, was there any maintenance revenue in there. You mentioned the OFC thing. Or is that just strictly base rentals?

Steven F. Udvar-Hazy

Greg?

Gregory B. Willis

Yes. This is Greg. We disclosed in our 10-K there's $25 million of maintenance revenue in the rental number.

Glenn D. Engel - BofA Merrill Lynch, Research Division

That's for the full year. How much was in the fourth quarter?

Gregory B. Willis

For the full year, the math of the quarter is $8.25 million.

Steven F. Udvar-Hazy

Now that's net overall revenue. Please understand that's not the gross overall revenues we received. That's actually a relatively small percentage of the cash overall reserves we received. We only book the portion that based on a very, very careful analysis and testing is the part that is not returnable or refundable or claimable by the airline. Does that make sense?

Glenn D. Engel - BofA Merrill Lynch, Research Division

Yes. But I guess I was wondering is -- so this has nothing to do with the plane coming back early, getting...

Steven F. Udvar-Hazy

No.

Gregory B. Willis

No.

Glenn D. Engel - BofA Merrill Lynch, Research Division

It's just the normal booking...

Gregory B. Willis

That's the normal revenue pattern.

Glenn D. Engel - BofA Merrill Lynch, Research Division

Okay. The maturity of your debt, where are we right now in terms of average maturity?

Gregory B. Willis

I think it's between 4 and 5 years.

Glenn D. Engel - BofA Merrill Lynch, Research Division

And your goal is still to get it up closer to the -- same as the lease rates?

Gregory B. Willis

That's up to 7 -- with regards to the 7-year note that we did, helped a significant amount.

Steven F. Udvar-Hazy

We're also looking at a Ex-Im Bank bond, which has a 12-year final tail on it, and that will further continue to improve our overall debt maturity profile.

Glenn D. Engel - BofA Merrill Lynch, Research Division

And finally, do you have many aircraft coming off lease next year?

Steven F. Udvar-Hazy

No.

Gregory B. Willis

No.

Steven F. Udvar-Hazy

So very few -- a very small percentage and most of our leases are getting extended. It's partly -- it's due to the fact that we have a young fleet. So these are still desirable airplanes. The vast majority of our lease terminations result in an extension.

John L. Plueger

Yes, historically -- we just made the comment with our management team that operating on a new fleet basis, historically over many years. Generally speaking, about 75% of our first run leases extend.

Operator

And your next question comes from the line of Mark Streeter of JPMorgan.

Mark Streeter - JP Morgan Chase & Co, Research Division

It's Mark with Jamie here. Steve and John, I want to tie in some of your comments on the 777s, what's going on with the 787s and your discussion about fleet planning and the pullback in export credit. I'm just trying to tie these together. Are they related? Is your bigger bet on narrowbodies related to maybe what's going on with the 787s? Or your customers fear over the availability of export credit. How do these -- are those tied together? I wonder if you can comment.

John L. Plueger

Well, yes, certainly. We commented that widebody demand, we saw increasing at towards the end of the second quarter and it continues now. I think certainly, one could say that some of that is probably attributable to concerns about the 787 resolution, but also part of it is just based upon replacement and pure demand. And on the single-aisle side, and again, we're not changing our overall strategy mix market, still going to be about 70%, 75% single aisle. We do see an overall continuing increase in the overall lease percentage of the fleet. That's currently just on maybe a hair [ph]under 40% sort of certainly more than 1/3. Over the next 2 to 3 years, we do see that growing to about 40%, 45%, and I think part of the factor there may in fact be that the export credit financing has gotten a bit more expensive with the 2010 ASU. And so we've already seen some evidence of that over the last few quarters. I think, we can point to a couple of examples. The airlines have tipped the scales in favor of leasing as opposed to paying a slightly higher rates that are involved with export credit financing.

Mark Streeter - JP Morgan Chase & Co, Research Division

Okay, great. And then just one more from us, your 2017 bonds, the $1 billion deal, you're coming up on the 1-year anniversary of placing those. You have a 50-basis-point step-up. If you don't get a rating you're clearly a better credit than some of your rated peers at least in my opinion. Where do you stand right now with the rating agencies?

John L. Plueger

It's still an ongoing process, Mark. I think -- the truth is we just now turned 3 years of age. That's about the absolute minimum that we're hearing back is kind of a platform for serious investment-grade ratings. But our dialogue is continuing, and certainly, our year-end results, our 10-K results here, et cetera, is an important metric that we are -- have provided now to the agencies. So look, the dialogue continues, but as before, we just simply cannot predict when this may happen. We think our credit metrics and profiles continue to get stronger every quarter and everyday, and we think we easily demonstrate that. But I just always shy on making predictions as to when this might happen. I would just say that rest assured, it is a top priority of this management team to get us there.

Operator

And your next question comes from Howard Goldberg of Credit Agricole.

Howard Goldberg

Could you provide a range for where you see your acquisition of flight equipment coming in the spending for 2013?

John L. Plueger

We don't provide that...

Steven F. Udvar-Hazy

We have 34 aircraft on order that have all been placed for calendar 2013.

John L. Plueger

If you refer to the 10-K, we've got a -- Howard, we've got a commitment table in there. That's what's exactly how much capital is going to be expended in the filing.

Howard Goldberg

Okay. Based on the 34 aircraft.

John L. Plueger

Correct.

Steven F. Udvar-Hazy

Correct.

Howard Goldberg

Okay. Haven't had the chance to go through it but will do so later.

Operator

I'd now like to turn the call over to Ryan McKenna for closing remarks.

Ryan McKenna

Thank you very much for all dialing in, and we will speak with you next quarter.

Operator

Thank you for joining today's conference. This concludes the presentation. You may now disconnect, and good day.

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Source: Air Lease Management Discusses 2012 Results - Earnings Call Transcript

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