John McMahon - Chief Executive Officer
Alan Jenkins - Chief Financial Officer
Jeffrey Goldberger - Investor Relations Counsel
Gary Liebowitz - Wachovia
[Ven Macavac - Vienna Capital]
Adarsh Mashru - Dupree Financial Group
Scott Valentin - FBR Capital Markets
Joe Gill – Bloxham
Andrew Light - Citi
[Alex Dalmady] - Banc of America/Merrill Lynch
Genesis Lease Ltd. (GLS) Q4 2008 Earnings Call March 4, 2009 ET
Good day and welcome everyone to the Genesis Lease Limited, fourth quarter 2008 earnings results conference call. This call is being recorded. At this time, I would like to turn the call over to Jeffery Goldberger, please go ahead sir.
Thank you, Angle and good morning everyone. Again, my name is Jeffery Goldberger and I’m with KCSA Strategic Communications, Investor Relations Counsel to Genesis Lease. The company’s Q4 and year end earnings release was issued this morning and is posted on the company’s website at www.genesislease.com.
Representing the company today are John McMahon, Chief Executive Officer, and Alan Jenkins, Chief Financial Officer. Before I turn the call over to John for his opening remarks, please allow me to read the following Safe Harbor statement.
This conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as expects, intend, anticipates, plans, believes, peaks, estimates, will or others similar words in meaning, included but not limited to statements regarding the outlook for the company’s future business and financial performance.
Forward-looking statements are based on management’s current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to various factors that are summarized in the earnings release and are described more fully from time-to-time in the company’s filings with the SEC. We refer you to those sources for additional information.
Genesis expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views or expectations or otherwise. This call is the property of Genesis Lease Limited. Any distribution, transmission, broadcast or rebroadcast of this call in any form, without the expressed written consent of the company is prohibited.
A replay of this call is available from today, Wednesday, March 4, until midnight Wednesday, March 11, 2009. For access to the replay, call 888-203-1112 in the United States and Canada or internationally at 719-457-0820 and enter the confirmation code 2407392. The webcast will be archived on the company’s website for one year.
At this time, it is my pleasure to turn the call over to John McMahon. John, the floor is all yours.
Thank you Jeffrey and welcome everybody to our fourth quarter and full year 2008 earnings call. Despite a very difficult business environment, our globally diversified portfolio of predominately latest generation fuel-efficient aircraft, continue to deliver solid cash flows and profitability during the fourth quarter.
Alan will provide details of the financial results shortly, but in summary Q4 net income increased 66.7% from Q4 2007 to $10.7 million, producing earnings per share of $0.30. Full year net income increased 4.5% to $40.9 million, reducing earnings per share $1.14.
We were able to deliver these results despite the fact we had a number of airline defaults that impacted our release revenues. While we had four aircraft off lease for much of the fourth quarter, the rest of the portfolio performed well and you will notice the customer receivables at year end were minimal.
Later in the fourth quarter, our servicer GECAS secured new lease contracts for the four aircrafts that were off lease. You may recall that two of these aircrafts were 737-800s formerly operated by Futura of Spain. The other two aircrafts were A320s, operated by Deccan of India.
Deliveries of the four aircraft to new customers are currently contracted to take place in the second quarter. However, there is a risk that one of the customers may not be in a position to take delivery. GECAS is currently in the process of examining alternatives and we still expect all four aircrafts to deliver in the second quarter.
We expect 2009 to be a challenging year for the commercial aircraft leasing industry and in that respect one of our customers is currently in default, in respect of its lease payment obligations on two aircraft. Genesis understands that the customer is in the process of securing new investment capital, which could eliminate the need to repossess these aircraft.
As is typical of operating leases, we hold security collateral in respect to such possibility. In this case the security held represents four months of lease rental for each aircraft. As we have said before, the ability to repossess and redeploy aircraft is a fundamental aspect of operating leasing and in the case of Genesis; these capabilities are provided by GECAS through our servicing agreement.
97.6% of our portfolio by value is made up of latest generation versions of popular aircraft types. It’s a well balanced portfolio by manufacturer, with Boeing and Airbus representing approximately 52% and 46% by value respectively.
Our contracted cash flows come from a globally diversified customer base, no undue concentrations with any one airline or in any one in country. This opposed to portfolio management helps to reduce the impact of problems with some of our airline customers, generating solid cash flows and profitability without a dependence on aircraft sale.
While our main focus as an aircraft leasing company is to grow the business through aircraft acquisitions in the industry to strike a balance between various opportunities, especially in light of the fact that both our stock and debt are trading at discounts. For example our stock continues to trade at a substantial discount to a book value per share of more than $15 after adjusting shareholders equity for the mark-to-market of interest rates swaps in OCI.
During the fourth quarter we commenced our previously announced share repurchase program, buying 1.79 million shares or about 5% of our issued shares at an average price of $3.12 per share. Similarly, we took advantage of opportunities in the fourth quarter to repurchase $13.5 million of our securitized debt at a substantial discount. Not only did this repurchase represent significant value, but it also reduced refinancing requirements at a later date.
So far in Q1, we have repurchased an additional $10 million of our securitized debt at similar discount levels of those achieved in Q4. We have a strong liquidity position which we will seek to manage carefully through 2009, while also seeking to deploy capital to take advantage of opportunities.
The global aviation industry has been resilient in the phase of significant challenges in the past and the long term outlook remains positive, as air transportation continues to grow and develop into the world’s mass transit system. Airlines have ordered more that 6,000 aircraft, representing more than five years of manufacturer production at current production rates.
Due to the downturn, it’s increasingly likely that the current order book will see some cancellations and will be stretched out over a longer period of time through deferrals. From today’s perspective, the industry will require more than $300 billion in funding for new deliveries over the next five years and it’s clear that operating leasing is going to play an important role.
However, the outlook for the industries new aircraft delivery funding in 2009 is currently unclear, with potential for a funding shortfall due to tighter credit markets. In addition the numbers of aircraft leasing companies or portfolios are for sale, which may put further pressure on industry funding sources assuming such sales can be completed in the current environment.
It’s clear that companies with access to credit have a scarce and valuable resource in the current business environment. In the past few days Genesis and its lenders successfully executed an amendment to our $1 billion credit facility, to overcome a difference in opinion about the application of a certain covenant in respect of the fourth quarter, when there were no drawings under the facility.
Although, the amendment increases our margin and commitment fees, we believe that it was very important to confirm our continued access to the facility, and we are confident that having access to this funding is a significant competitive advantage for Genesis, especially in a severely constrain credit environment.
Alan, will provide additional background on this, as they relate to our ability as part of his review over the financials. Alan.
Thanks John. As John noticed in a very difficult environment in 2008, our business continued to deliver strong cash flows and profitability through all four quarters of the year. At year end, the weighed average age of our portfolio was 6.6 years, excluding our four freighter aircrafts, which typically enjoy longer useful lives. The weighed average age reduced it to 5.7 years.
Currently 50 of our 54 aircraft are in operation with 34 airlines in 19 countries. As John noted, the remaining four aircrafts were subject to leases with two new customers for delivery in the second quarter of 2009, albeit there is a risk that one of the customers may not be in a position to take delivery.
Our weighed average remaining lease term on a 50 aircraft in operation is 4.5 years, an increase as to 5.2 years if we had lease contracted, but not yet delivered. Overall, our lease terms reflect a well balanced maturity profile extending out to 2020, which continues to provide visibility around our revenue cash flows.
The weighted average number of aircraft units in our portfolio increased from 44.5 in 2007 to 53.5 in 2008. As a result, our rental revenues increased substantially year-on-year from $181.3 million in 2007, to $216 million in 2008, an increase of 19.1% despite the impact of lost revenue from deferrals in 2008.
In total, Genesis repossessed six aircrafts in 2008, two of which are flying with new customers, four of which are subject to time leases. There is no downtime in 2007 on our aircraft, so the year-on-year utilization rate dropped from 100% in 2007 to 96.1% in 2008.
Our rental revenues for the quarter were $52.4 million, compared to $54.9 million in the fourth quarter of 2007, representing a decrease of 4.4%. The decrease is primarily due to the four non-revenue generating aircrafts during the fourth quarter, which resulted in a utilization rate of 91.6% for Q4, compared to 100% for the same period in 2007.
Total revenues were $224 million and $188.1 million for 2008 and 2007 respectively, an increase of 19.1%. Total revenues for the fourth quarter were $58.9 million compared to $55.6 million, not withstanding the Q-on-Q decrease in utilization rates and rental revenues.
During the fourth quarter, Genesis repurchased $13.5 million of our securitization notes for a total price of $7.5 million including transaction costs. Other income includes the $6 million gain related to this transaction, which more than offset any redemption in rental revenues.
Depreciation for the quarter was $19.8 million, compared with $18.9 million for the same period last year. Depreciation for the full year was $78.7 million compared with $62.3 million in 2007, an increase of 26.4%. Depreciation increased as a result of the increase in the number of aircraft, but also due to an increase of $4 million in the depreciation charge related to plan major maintenance costs for the year.
Interest expense for the quarter was $19.3 million compared to $18.8 million in 2007. Interest expense for the full year was $71 million, compared to $55.2 million in 2007, an increase of 28.5%. Our blended interest cost for the year, excluding commitment fees and the amortization of any financing cost, was 5.83% in 2008, compared to 5.75% in 2007.
The interest expense increased as a result of the increase in the number of aircrafts, but also due to the increase in leverage on two aircrafts, one of which was acquired in 2008. In addition, interest expense includes $5.3 million and $3.8 million respectively in 2008 and 2007, relating to commitment fees and the amortization of financing costs on our $1 billion credit facility, to an absolute increase of $1.5 million. The facility was in placed for the full year in 2008 and we also upsized to the full $1 billion in October of 2008.
We recorded a maintenance charge of $2.1 million during the fourth quarter and $3.4 million for the full year. The maintenance charge for the quarter and the year increased compared to 2007, at the direct result of the increase in defaults related to the repossession of six aircrafts in 2008. These defaults can result in loss revenue, but also can results in additional maintenance expense arising from the repossession of an aircraft and work required to prepare the aircraft or delivery to new customers.
We incurred $5 million of SG&A in the quarter, compared to $6.7 million in the same period last year. While SG&A increased on a full year basis, the 2007 number was not a fully scaled expense, given the stage of development of the company in the earlier part of 2007. SG&A in the fourth quarter of 2008 actually decreased by $1 million compared to the third quarter of ‘08, until it leveled-off as the company has developed a solid infrastructural platform at this stage.
With respect to tax, Genesis did not expect to pay any material cost taxes for 2008 or for the foreseeable future. Our effective tax rate is at 13.2% for the year, similar to last year of 13.4%. Our taxes is a function of Genesis being tax resistant, and are in the low tax jurisdiction with favorable tax depreciation rules for aircraft.
So in summary, our net income and equaled EPS for the full year was $14.9 million and $1.14 respectively, compared to $39.2 million and $1.9 for 2007, an increased in both net income and EPS of approximately 4.5%. The increase in net income was significantly impacted by the six aircraft defaults; the pretax impact of those defaults totaled $8.7 million. Net income excluding the impact of those defaults would have totaled $48.5 million, an increase of 23.7%.
The results for the year also included an increase of $4 million in the depreciation charge relating to planned major maintenance costs and the addition of commitment fees and amortization financing costs of $1.5 million on the $1 billion credit facility.
A leased out $51.8 million for the quarter, compared to $45.5 million in 2007, an increase of 13.8%. EBITDA was $197 million for the year compared to $163.1 million for 2007, an increased 20.8%. Our earnings release provides a detailed reconciliation of net income to EBITDA.
Turning to the balance sheet, we had total assets of $1.8 billion at year end, of which $1.6 billion relates to our aircrafts. Accounts receivable of $0.5 million mainly reflects tax and other receivables. At year end we had negligible lease receivable across 50 leases, a very strong performance in the current environment. Unrestricted cash was $60.2 million at year end, total cash including restricted was approximately $93.9 million.
Like other companies we will be monitoring our liquidity position through 2009, which remains strong. The unrestricted cash balance as of March 3, 2009 was $74 million. With respect to our financing on the current 54 aircraft, we do have a debt service coverage ratio on the 41 aircraft in the securitization, which commences in November of 2009 and we also have an annual LTV Test every September on the debt financing for 11 of our aircraft.
There is significant headroom with respect to both covenants; nonetheless we need to monitor them carefully in the current environment, where further deferrals and reductions in current market values are a possibility.
Our liabilities totaled $1.3 billion; accounts payable increase compared to last year to $35.4 million, primarily due to additional capitalized maintenance grows relating to planned and major maintenance costs. Other liabilities also increased from 2007 to $118.4 million. However, other liabilities include the fair value of our swaps of $87.1 million, which increased substantially during the year, as a result of the reduction in interest rate. $1.1 billion of our liabilities reflect our cash.
With respect to our financing activities we close three banks financing from 2008, raising a total $333 million. The most significant transaction was a $241 million seven year term debt facility closed during September of 2008, where we took advantage of an attractive opportunity to renew any refinancing requirements out to least 2011.
During the fourth quarter, as we know this, we repurchased $13.5 million of our securitization notes at a substantial discount to par, generating a gain of $6 million recorded under other income. Such a transaction while generating significant value also reduced our refinancing requirements in due course.
Also in the fourth quarter, we repurchased approximately 5% of the issued shares, at an average price of $3.12 per share at year end; therefore, Genesis has issued 34.3 million shares. At year end, also our total debts to book debts and equity was 70.3% or 67.2% as we adjust shareholders equity for the ‘out of the money’ swaps recorded in OCI.
Finally with respect to our $1 billion revolving credit facility, the facility is a warehouse facility and therefore by very nature it’s a temporary facility. As noted in Q3 of last year we refinanced 11 aircraft out of the revolver and into a separate long-term financing. This led to a period where there were no aircrafts in the revolver and therefore no outstanding borrowings.
However, with respect to the fourth quarter of 2008, the company and lenders had a difference in opinion about the application of an EBITDA over interest expense covenants. To overcome this difference, the company worked closely with the lenders, to agree an amendment to the facility in order to clarify how this covenant will be applied.
The salient details are included in the release, plus in summary we have agreed that cash contributions will be deemed to be sufficient to satisfy the EBITDA, the interest expenses, when borrowings are below $200 million on average in any quarter. The margin during the revolving period to April 4, 2010 will increase by 100 basis points.
The commitment fee will increase by 12.5 basis points to 50 basis points and the commitment fees will increase by a further 25 basis point to 75 basis points on September 30, 2009, but only to the extent we have not drawn down $200 million by that date and an amendment fee will pay to the lenders in total an amount of $763,000.
So, with that I will turn the call back to John for his closing remarks.
Thank you, Alan. In summary, our aircraft portfolio performed well in 2008, albeit we had some challenging defaults and it would not be unreasonable to expect some level of defaults in 2009 given the current business environment. During 2008 we raised $333 million in new funding in the most difficult credit market for many decades. We have a strong liquidity position which we will seek to manage through 2009.
In terms of capital deployment, the current environment is giving rise to some very attractive aircraft investment opportunities and clearly there are also significant value opportunities on the liability side of our balance sheet through debt and stock repurchases. We have no unfunded commitments right now and we have no immediately recommencing requirements, and we have recently confirmed our access to a $1 billion credit facility which is an extremely valuable asset in the current environment.
Genesis management and board are very conscious of the extraordinary financial and economic conditions that currently prevail and the impact on the near term outlook for commercial aviation; all of which weigh heavily on our stock price. We wish to ensure you that we are focused not only on steering the company through these difficult times, but also on positioning it to benefit from opportunities to restore and enhance long term shareholder value.
As previously announced on February 25, the company’s Board has approved a dividend of $0.10 per share for Q4. In accordance with our policy, the Board will continue to review the dividend payment on a quarterly basis. I wish to express my gratitude for the continued support of our shareholders.
With that I’d like to open the call to questions.
(Operator Instructions) Your first question comes from Gary Liebowitz - Wachovia.
Gary Liebowitz - Wachovia
John, you mentioned the four aircraft that were off lease that you hope to see reenter service in the second quarter. Can you give us an estimate of how much deterioration in lease rates that you plan to see once those are re-leased?
Alan has the details in front of him; let me pass it to Alan.
Well, in the first instance Gary, we’ve incorporated in the release a summary of the leases that were executed within 2008 and you can see that indicates that lease rentals across that group went up by 8.7%. That’s what incorporates the four leases on the aircraft on the ground at present, because they were actually executed in the fourth quarter of 2008.
So in aggregate, there is an increase across the four aircrafts relative to their previous leases, but as we noted in our prepared remarks, there is some risk around the delivery of two of those aircraft and we’re looking at alternatives currency, but also expect that those aircrafts would deliver in the second quarter.
So in summary Gary, it wasn’t a reduction in rentals, it was actually an overall increase.
Gary Liebowitz - Wachovia
Also, John if I could talk about asset purchase opportunities, I wonder what if you can comment on the types of deals that GECAS might be presenting here. I understand they’re actively trying to sell a lot of aircrafts these days and also if either of the OEMs have approached too, as they are finding difficulties with their airline customers to be able to finance purchases.
Yes, as you can appreciate Gary, we’re essentially talking to everybody. We outlined previously the range of perspective counterparties that Genesis has in the sense of airlines, first and foremost that we originate deals with ourselves in terms of purchase in lease packs, but specifically our newer equipment that they either have just taken delivery of or are about to take delivery of. So they clearly are a significant opportunity in 2009.
Similarly, there are current owners of aircraft and whether it’s the GECAS or these other leasers that on an ongoing basis look to sell aircrafts and clearly are more likely to be motivated sellers in the current environment than it was previously the case, we engage with those and we’re looking at opportunities from those source as well.
As you say, the manufacturers, as they look around the industry and they look at potential constraints in terms of funding in 2009, they look to work with leasers such as Genesis to see if there are ways in which we can work together to do deals that makes sense, both for the airlines for ourselves. So, it cuts right across the spectrum.
Your next question comes from [Ven Macavac – Vienna Capital]
Ven Macavac – Vienna Capital
First off, is there a limit the amount of debt you can repurchase?
There is no specific limits I believe from a company perspective. There may well be a limit in terms of what one can acquire in the markets. As you know our securitized debt is traded in a secondary market and it’s a relatively delinquent market. There is only a small number of transactions on a monthly basis, so it tends to be quite opportunistic.
Just in terms of any specific limit on the company, we do need a policy provider, in the senses that Deutsche is the policy provider within our securitization. We do need their consent to acquire a certain threshold, but we’re well short of that threshold currency.
Ven Macavac – Vienna Capital
Can you give us a little more color, the four aircrafts that you placed in the fourth quarter; how does those lease rates compared to the previous lease rates that were defaulted on?
I think that’s the same question that Gary asked a moment ago, which gives me an opportunity actually to clarify a remark I made, where I indicated that there’s a summary in our release relating to all leases that we executed in 2008. The release actually excludes two of those four aircrafts and there is the potential risk around the delivery of those two aircrafts that you’ll see with respect to the remaining leases we signed in 2008, including two of the four, the increase is 7.7% in aggregate, but if you want it to focus simply on the four that we signed in 2008, the number is higher than it was for the previous leases.
Ven Macavac – Vienna Capital
One of your competitors had a similar type thing and they showed a 23% drop in rates, you guys are saying you actually saw an increase in rates?
Yes, but again you also need to take a couple of things into perspective. One is, sometimes leasing companies do move aircrafts quickly. They take the lower rental in order to secure a new customer. Clearly there are certain benefits associated with that up lease, which is that the aircraft gets back into revenue generating service sooner rather than later. Equally in this case GECAS is our servicer and GECAS is focused both on securing the best deals possible for the company over the longer term and obviously putting the aircraft back into revenue service. So I guess that’s why you see it.
Your next question comes from Adarsh Mashru - Dupree Financial Group.
Adarsh Mashru - Dupree Financial Group
You mentioned that there was one client who might possibly default. Do you have any other clients that are on the watch-list for maybe a default of 300 tons apart from the one that you mentioned?
We watch our airline customers very, very closely; all of them and in this instance there is a heightened level of concern about the customer in question, not lease because they’re in default on their rental payments.
Again GECAS on our behalf are very, very good at collecting rentals and clear evidence of that is shown with the minimal level of receivables that we had, not just at the end of the fourth quarter, but if you track back throughout our history to-date, it’s a minimal level of receivables. So that if a customer starts to become late in its payment, that is clearly a red flag and then at this instance we then take action.
So, this particular customer that we’re concerned about has missed its payments. We are concerned about it, we’re highlighting that. As I indicated, there is scope for new investment into that airline and therefore for that situation to be result amicably without the need to repossess the aircraft, but again I think it’s important that we highlight the possibility at least on this earnings call.
Your next question comes from Scott Valentin - FBR Capital Markets.
Scott Valentin - FBR Capital Markets
You mentioned on the call that your liabilities are attractive, you stocks attractive and then there are aircrafts that are attractive as well, opportunities. Can you give more color as to how you decide where to allocate the capital?
Sure. Well, not surprisingly we analyzed each of these potential opportunities. So, we consider the returns, the risks, the impact on our liquidity and a variety of other qualitative considerations. The cycle, John explained well is developing such that aircraft investment opportunities are from a pricing perspective becoming more attractive, but clearly there is also significant value on the liability of our balance sheet and we have been transacting over the course of the last three months. So, it’s the question of considering all aspects before deciding upon deploying that capital to ensure that we’re maximizing medium term value for our shareholders.
Scott Valentin - FBR Capital Markets
Okay and in terms of liquidity on the balance sheet, how low could say cash and other liquidity go before you’d feel less comfortable buying back getting and stock?
Well, we have a strong liquidity position. As we said, our current unrestricted as of yesterday it was $74 million. We don’t have any unfunded commitments, we don’t have any short term refinancing requirements, we don’t have any requirements to post any collateral associated with derivates.
So, we’re very comfortable with our liquidity position. We do have a couple of covenants within our financings to monitor plus, as I indicated there’s significant head room there. Not withstanding that, we still have to insure that we maintain an appropriate cash flow and so now we have capital to deploy, but clearly we need to insure we keep an appropriate cash book going forward as well.
Your next question comes form Joe Gill – Bloxham.
Joe Gill – Bloxham
I just got two questions and one in relation to the current state of the leasing industry in total, in terms of the amount of assets seem to be for sale, what risks do you consider that posses for aircraft values and rentals in the business; and secondly, what opportunities is it creating to either engage an M&A activity or be involved in some form of transformational deal in the industry over the next 12 month?
The second question is in relation to what you’re seeing coming through from the airlines at present, are there many airlines trying to do sale on leaseback deals on unencumbered aircraft, more than would normally be the case? Thanks.
Well, I’ll take the second question first Joe. Certainly there are more airlines now focused on opportunities associated with sale and leaseback of their aircraft, because an airline had unencumbered aircrafts that they can perform such a transaction that present in and of itself make it attractive to us. We are very specifically focused on certain group of aircrafts, principally the latest generation 737 next gens and A320 family aircrafts.
So, in principal if you look at aircraft deals or purchase leaseback basis with airlines, are more likely to be focused on aircraft that are probably recently delivered to the airline or about to deliver to the airline, so nearly new aircraft.
Then if you look at the broader industry as I mentioned, there is quite an amount of activity or perspective activity as it relates to aircraft leasing companies or portfolios. In that respect it represents both an opportunity, but it also represents a potential overhang with respect to funding considerations within the industry. It is not only the industry that has facilities for funding to lease.
The new aircraft delivery requirement of course in 2009 we’ve seen so far as any of these other deals take place, an additional level of funding needs to be put in place to execute against those. I think that’s one of the reasons why we believe so firmly in having access to credit in the current environment, is a critical competitive advantage and that’s why we moved as we did to a result, what was essentially a miner dispute with our lenders in a positive way to ensure that we secured a $1 billion of credit to take advantage of the opportunities that were likely to be available in 2009.
(Operator Instructions) Your next question comes from Andrew Light - Citi
Andrew Light - Citi
Just could you remind me, in additions to the full aircrafts on the ground to the moment, how may more aircrafts outstanding to be placed on lease this year and also next year?
Well we only had two aircraft that were coming off lease in 2009 and as we indicated sometime ago, those aircrafts have already being placed on lease. So the next available aircraft are in 2010.
Andrew Light - Citi
How many do have in the year, just show me?
Yes, we have seven aircrafts Andrew, while the eighth is expiring in 2010. The first is in the second quarter of 2010 and so from an operating leaser’s perspective; actually sorry it’s five in 2010, so the first comes off lease in the second quarter of 2010 and so from an operating leasers perspective, one starts to look at that 12 months ahead of that and so GECAS will be speaking to those customers and remarketing those aircrafts into costs towards the remainder of 2009.
Andrew Light - Citi
Are there any freight aircrafts within this five? Have they’ve got a few freights, are they included in that five?
No freighter aircrafts.
Andrew Light - Citi
Okay. Second question, you made quite a number of announces recently in terms of leasing out the company and the board. I assume that will have some impact for SG&A, can you give us a rough idea of how much would you expect SG&A to rise this year and are you still in an expansion mode on that front and do you feel that really in this environment we should be cutting back?
Well, like every income statement, it ultimately depends on the level of growth within the company and the level of acquisitions. If I was to look at the 54 aircrafts, right now I would expect the 2008 SG&A number not to be an unreasonable run rates.
Actually in fact I would be hopeful of some level of reduction in 2009 relative to that number, simply because I think the company has now moved into its second more mature phase if you like, but in addition if we layer on the potential growth and acquisitions onto that number, clearly it would increase, but as a percentage of revenue we would expect it to start decreasing.
We do have our servicing arrangement, the GECAS which is a long term arrangement, which has a variable component through it. Both in terms of our corporate overhead, we would expect that we’ll able to ask significant number of units without any significant increase in that element.
Equally Andrew, in any instances, the hiring of an individual into the company is to reduce overall costs, in essentially the places they need to outsource that particular requirement.
Andrew Light - Citi
Okay thanks, it’s actually just on the SG&A, not anything you mentioned on the call, but how much the benefit from the weak during the quarter? Is that material?
During the fourth quarter?
Andrew Light - Citi
Yes, you don’t have revenue and yet buying the Euro cost.
Yes, it’s not material. I mean there is an element of our SG&A, which is nominated in euros, given that we’re based in Orleans. We did enter into some forward contracts and due to that on occasions manage our overall euro, U.S. dollar exposure, but it wasn’t being material in the context of the overall quarterly SG&A number.
Your next question comes from Mike Linenberg - Banc of America/Merrill Lynch.
Alex Dalmady - Banc of America/Merrill Lynch
Hey everyone, this is actually Alex Dalmady on behalf of Mike. I just had a quick question regarding the LTV test, regarding the 11 and I think they are A320s and 737 aircraft on one year debt facilities. Can you talk about the latest appraisal date that you have on those aircrafts and if you can discuss more on the value of the aircraft at that point in time?
Sure, well as I mentioned in the prepared remarks, we do have an annual LTV test on 11 aircrafts within one of our financings and that LTV test occurs each September, based on the most recent June 30, maintenance adjusted current market values.
So, if I was to look forward to the license even into 2009, when I say there’s significant headroom there, it’s always an estimate in terms of looking out where the aircraft is likely to be in its maintenance cycle in terms of the maintenance adjusted component, but broadly we have to see a current market value reduction in excess of 10% over the course of the next six months.
So, in excess of 20% of an annualize basis before we reach the 75% threshold. Even in a situation were that occurs, then we simply have pay down the debt to comeback to 75%. So clearly from a liquidity perspective, we’re in strong shape there.
It appears we have no further question. So, I’d like to turn the call back over to Mr. John McMahon, for any closing remarks.
Okay, I just want to thank everybody again for joining us on today’s call and we look forward to talking to you all again in the next quarter. Take care. Thank you.
And that concludes today’s conference. We thank you for your participation. You may now disconnect. Have a wonderful day.
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