FLY's CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 3.13 | About: Fly Leasing (FLY)

FLY Leasing Limited (NYSE:FLY)

Q1 2013 Results Earnings Call

May 2, 2013 9:00 AM ET

Executives

Matt Dallas - Investor Relations Manager

Colm Barrington - Chief Executive Officer

Gary Dales - Chief Financial Officer

Steve Zissis - President and CEO, BBAM

Analysts

Helane Becker - Cowen Securities

Gary Liebowitz - Wells Fargo Securities

Richa Talwar - Deutsche Bank

John Godyn - Morgan Stanley

Glenn Engel - Bank of America Merrill Lynch

Operator

Good morning. And welcome to the FLY Leasing Limited First Quarter Earnings Conference Call. My name is Christie and I will be facilitating the audio portion of today’s interactive broadcast. All lines have been placed on mute to prevent any background noise. This event also features streaming audio, which allows you to listen to this show through your PCs speakers. For those of you on the stream, please take note of the options available in your event console. (Operator Instructions)

At this time, I would like to turn the show over to Matt Dallas. Sir, please go ahead.

Matt Dallas

Thank you, and good afternoon and good morning to everyone on the East Coast. This is Matt Dallas, the Investor Relations Manager at FLY Leasing. And I’d like to welcome you to our first quarter 2013 earnings conference call.

FLY Leasing, which we will refer to as FLY or the company throughout this call, issued its first quarter earnings results press release earlier today, which is posted on the company’s website at www.flyleasing.com.

Representing the company on this call today will be Colm Barrington, our Chief Executive Officer; Gary Dales, our Chief Financial Officer; and Steve Zissis, the President and CEO of BBAM, the company that manages and services FLY’s fleet.

I’d like to begin the call by reading 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 include, but are not limited to, statements regarding the outlook for the company’s future business and financial performance. Forward-looking statements are based on current expectations and assumptions of FLY’s management, which are subject to uncertainties, risks and changes in circumstances that are difficult to predict.

Actual outcomes and results may differ materially due to factors that are summarized in the earnings press release and are described more fully in the company’s filings with the SEC. Please refer to these sources for additional information.

FLY 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 FLY and cannot be distributed or broadcast in any form without the express written consent of the company. A replay of this conference call is available for one week from today. An archived webcast of the call will be available for 90 days on the company’s website.

I’d now like to hand the call over to Steve Zissis. Steve?

Steve Zissis

Thanks, Matt, and good morning, everyone. In my prepared remarks on our last earnings call, just eight weeks ago, I’d touch on a few key themes for our business and the overall marketplace. I can confirm that generally speaking these themes persist today and I’ll briefly recap them for you on today’s call.

First, demand from our airline clients for aircraft and operating leases continues to show underlying strength that surprises to the upside. In just a first months of the year, we have signed up new leases or executed letters of intent on six aircraft, five new remarketings and one out right sale.

Lease rates continued to improve especially for used 800s, as demand exceed supply during the high season, our Airbus narrow-body continued to strength albeit from a very low level.

Many financial institutions including healthy mix of banks, insurance companies, sovereign wealth funds, pension funds and other financial investors are recognizing that aircraft leasing business offers a steady and predictable return opportunity with relatively low volatility in periods of financial distress.

This has resulted in a significant flow of new capital in the sector, which has resulted in an increasing asset values. As we have stated on other calls with our shareholders, we are targeting three to $300 million to $500 million of new aircraft acquisitions in 2013, and we think we can exceed this target while still making prudent investments and making attractive returns for our shareholders.

We expect the growth to come from a mix of new or nearly-new aircraft and selected acquisitions of mid-life in-production aircraft. The new or nearly-new equipment represents in our view, relatively safe corner of the market to deploy capital for predictable returns.

Investments in mid-age equipment represent strong prospects for attractive returns with reasonable downside protection from current pricing levels. As always, we seek our relative value and remain committed to be nimble and agile in what is a dynamic sector.

As of today, we closed on one aircraft and committed to five additional aircraft, together these six aircraft are expected to add approximately $215 million of acquisitions to our portfolio in aggregate. This puts us on track to meet or exceed our growth targets for 2013.

The combination of steadily improving lease rates, increasing liquidity in our portfolio and the attractive growth opportunities we see for FLY will drive revenue growth over the coming quarters.

As we think about profitability of our business, one must consider the strength of the financing markets, because interest rates is one of the key economic determines of financial success in aircraft leasing business. In short, fixed income capital markets conditions continued to be very strong.

Another encouraging sign is the reemergence of bank debt for our business. Many new banks have entered the space in recent years and most of the traditional players have returned to market with new budgets and reduced commitment to the sector. As a result, margins are tightening, leverage levels are increasing, and lenders are going to take asset risk that has not been recently available.

The management team is fully invested alongside each of you between the FLY shareholdings of the individuals on the management team and the whole use of our partner Onex, we have approximately $50 million invested in FLY common stock.

We are subject to long-term, multiyear lockup arrangements and as insiders own a larger percentage of our company than any other publicly listed aircraft leasing company. We are optimistic about the future and look forward to updating you on our next call.

I will now turn the call over to Colm.

Colm Barrington

Yeah. Thank you, Steve, and good afternoon, everyone. We are happy that FLY is reporting another strong quarter and a very good start 2013, virtually every line in our income statement and our balance sheet was better than in the same period 2012.

Our adjusted net income was $38.5 million, $1.37 per share and our net income was $32.8 million, $1.15 per share. This measures range from 32% to 61% above the same period in 2012. The significant increases in per share numbers were despite of 9% increase in the weighted average number of diluted shares outstanding in Q1 2013, as compared to Q1 2012.

Our first quarter financial results were significantly and constantly impacted by end of lease income and aircraft sales. As our portfolio has grown, end of lease income has become a recurring portion of our revenue, although it can be even -- unevenly distributed throughout the year. We currently expect about $15 million of end of lease income in the second quarter.

Despite a strong quarter, our results were negatively impacted by our lease utilization, which totaled 94% in the quarter. This is as a result of scheduled and unscheduled lease returns that FLY experienced in late 2012 and in the quarter just passed. We expect all of our aircraft to be committed by the end of the second quarter and to have very close to 100% utilization in the third quarter.

We are particularly pleased to sold nine older aircraft portfolio in the quarter. It included one Airbus A320, six Boeing B717 and two B737-500 Classics. The average air age of these nine aircraft was 13.5 years and the total consideration was $78 million. FLY’s gain over the net book value was $6.5 million.

These sales were consistent with FLY’s strategy of managing its fleet in terms of aircraft age. They’re aimed to concentrate on the both popular aircraft types. These nine aircraft were all older than our fleet average and the six Boeing 717 in particular are unique aircraft type that is not widely used worldwide. We acquired these six aircraft as a part of our portfolio in late 2011 and the sale per profit have also resulted in positive cash generation net several corporate objectives.

We are frequently asked by shareholders why FLY shares trade at such a significant discount to net book value which at the end of March was $563 million or approximately $20 per share. Of this $20, approximately $12 was in cash.

Our shares are currently trading in approximate 25 discount, two net book value and at a relatively small premium to the cash component. To put our book value and our fleet value into perspective, since 2008 FLY has sold total of 21 aircraft in open market transactions.

These 21 aircraft had an average age of 12.5 years and so generally significantly older than the average age of our fleet at the time of sales. The adequate sale of proceeds in these 21 sales was $436 million and our total gain over our net book value was $51 million. This is a premium of 13% to the net book value of this group of aircraft. We’d like the market to understand these figures so that the underlying value of FLY’s portfolio and in our shares can be better appreciated.

Meanwhile, FLY has paid its 21st consecutive quarterly dividend on February 20th and declared its 22nd consecutive quarterly dividend on April 15th. Both of these dividends were $0.22 per share per quarter and based on our current share price, our dividend yield is approximately 6%. The next quarterly dividend of $0.22 will be paid on May 20th to shareholders of record on April 30th.

We’ve previously indicated that we will consider dividend increases as we grow the portfolio and the cash flow at the moment. As we are successful with our growth plans, which I’ll address in a few moments, we hope to be in a position to offer further dividend increases.

We’re also pleased to report an ongoing reduction in FLY’s leverage. Following our major portfolio acquisition at the end of 2011 and we increased our fleet by 80% to over 100 aircraft. FLY’s financial leverage peaked at over 5 to 1.

We got ourselves the target of reducing this to less than 3.5 to 1. Through ongoing debt management and cash generated from our portfolio, we have reduced leverage significantly. At the end of March, it was 3.2 to 1.

We see potential for further reduction in the short-term but are generally happy with the present situation. It’s worth noting that this deleveraging has been completed alongside of significant increase in our unrestricted cash, which grew by $34 million in the quarter to nearly $200 million at quarter end.

FLY’s contracted interest cost was also reduced to 5.1% in Q4 of 2011 to 4.6% in Q1 of 2013. Assuming continuation of the current interest rate environment, we expect to see further reductions in our interest cost over the course of 2013.

During our last call, two months ago, we discussed our growth plans for FLY. We indicated that we intent to grow our fleet value by up to $500 million this year. As of today, we are on track to achieve this target with one new B737-800 already acquired and further five aircraft purchased under letter of intent. As a result, we have sourced over $200 million of our target.

We also have an exciting pipeline of our potential transactions which are in the process of consummating. These aircraft can be purchased with our existing acquisition facility and our unrestricted cash. Obviously, as we deploy this free cash in new acquisitions we’ll have a positive impact on future net income and earnings per share.

So, with that, I’ll hand you over to Gary, our CFO, for deeper look at financials.

Gary Dales

Thank you, Colm. We’re reporting net income for the quarter of $32.8 million or $1.15 per share. This compares with $20.4 million and $0.78 per share for the same quarter in the previous year. The increase in net income and earnings per share is due to gains recognized from the sale of nine older aircraft during the first quarter of 2013 and an increase in end of lease income.

Adjusted net income for the first quarter of 2013 was $38.5 million or $1.37 per share, as compared to $26.8 million or $1.04 per share for the same period in the previous year. Total revenues were $114.4 million for the first quarter of 2013 and include $6.5 million in gains from aircraft sales. This compares to total revenues of $104.5 million in the same period in the previous year.

We had a $107.4 million of operating lease revenue for the first quarter of 2013, which includes $30.6 million of end of lease income. End of lease income for the same period in the previous year was $15.9 million. We are currently anticipating approximately $15 million of end of lease revenue in the second quarter of 2013.

Total expenses for the first quarter of 2013 were $76.6 million. This compares to $81.5 million for the same period in previous year. The decline is primarily the result of reduction in our interest expense, which is driven by the deleveraging accomplished during 2012 and into 2013. Reduction in the cost of our debt is also contributing to the decline.

Our provision for income taxes for the first quarter of 2013 was $4.9 million. This represents an effective rate of 13.1%. The effective rate for the same period in the previous year was 11.5%.

At March 31, 2013, our assets totaled $2.9 billion, of which $2.5 billion is invested in flight equipment held for operating lease. Our total cash balance is $344.7 million, of which $196.7 million is unrestricted. This compares to total cash of $300.6 million at December 31st, of which $163.1 million was unrestricted.

The sale of the six Boeing 717 aircraft generated approximately $17 million of unrestricted cash. The balance of the increase was generated from operations. During the first quarter of 2013, our debt balance increased by -- our debt balance decreased by $70.6 million, including $38.5 million of debt assumed by the buyer -- by the purchasers of the six Boeing aircraft. The balance of the decrease was due to regular amortization of our debt balances.

During 2012, we refinanced substantially all of our near-term debt maturities and have no significant debt maturities until 2018. We have been focused on reducing our net leverage, which we define as the ratio of net debt to shareholders equity. After acquisition of 49 aircraft in the fourth quarter of 2011, our net leverage ratio increased to 5.1 times. At the end of 2012, this ratio had been reduced to 3.6 times. At March 31st, this ratio was 3.2 times.

We define net debt as the book value of secured borrowings less unrestricted cash and cash equivalents. We are seeing the benefits of refinancing and deleveraging accomplished in 2012 and of our expanded portfolio in the current period results. And these trends will continue throughout 2013.

With that, let me turn it back to Colm for his closing remarks.

Colm Barrington

Thank you, Gary. So to summarize then, FLY’s has had another positive quarter with higher revenues, reduced costs and higher net income. We continue to pay an attractive dividend. We’ve also strengthened our balance sheet, reduced our financial leverage and increased our unrestricted cash.

Meanwhile, we have continued to manage our portfolio by selling nine older less popular aircraft and acquiring a new Boeing 737-800. We have the resources to complete our growth plans and expect to add more new aircraft. We will see further accretion to our earnings and our EPS.

So with that, we are now ready to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question will come from the line of Helane Becker with Cowen Securities.

Helane Becker - Cowen Securities

Thanks, very much, Operator. Hi, guys. Thanks for taking the time. I just have a couple of questions about the comments you made with respect to the end of leased revenue in the in the current quarter. So, are all the aircraft being operated now, or are there aircraft that are coming off lease that still need to be placed this year? Can you just talk to that?

Steve Zissis

Sure, Helane. It’s Steve. In our last earnings call, we’ve updated you that we had eight aircraft available in 2013. During that time, one aircraft fell out of LOIs, so that would give us nine aircraft available for 2013. Since that time, we’ve signed up LOIs or executed deliveries on six aircraft, five of them for remarketing and one for an outright sale, leaving us with three aircraft remaining for 2013.

Of those three aircraft, two of them are in the fourth quarter of 2013. And right now, we expect those not to redeliver until the end of the first quarter of 2014, which means that we’ve got one aircraft essentially available right now that is not committed to a lessee. So by the end of July, we expect to have a 100% utilization of the fleet.

Helane Becker - Cowen Securities

Okay. That’s fine. And, then I just had one other question. So when you in the new tier, you talk about the average fleet age being 9.6 years, is that after the aircraft that were sold, the six aircraft that were delivered already?

Colm Barrington

Yeah, Helane. That is up -- that was, as at least as it was at the end of March 2013.

Helane Becker - Cowen Securities

Okay. And then I know you said this and I don't know exactly why I missed it. But how much money do you have now committed to spending this year for new aircraft or additional purchases?

Colm Barrington

It’s what we’ve bought and what we’ve signed under lessors than 10. We have committed to $215 million.

Helane Becker - Cowen Securities

$215 million, right? Okay. Thanks very much. We will talk to you later.

Colm Barrington

Thanks, Helane.

Operator

Your next question is from Gary Liebowitz with Wells Fargo Securities.

Gary Liebowitz - Wells Fargo Securities

Thank you, Operator, and good afternoon.

Colm Barrington

Hi, Gary.

Gary Liebowitz - Wells Fargo Securities

The $15 million of second quarter end of lease revenue, is that all associated with scheduled lease termination -- lease expirations or were there's some more, was there another customer failure in there?

Colm Barrington

No more customer failures. Sale is as good as that old scheduled lease redeliveries.

Gary Liebowitz - Wells Fargo Securities

Okay. Also, can you give us a little color on the five aircraft that you’ve committed to purchase? Are they younger narrow-bodies?

Gary Dales

Yeah. They are younger narrow bodies, primarily 800s, Gary.

Gary Liebowitz - Wells Fargo Securities

Okay. Very good. And can you talk about, there was a report that you were looking, you were involved in potentially a 778 acquisition with a major Asian carriers? Is that still active, that campaign?

Colm Barrington

I don’t think we would like to talk, Gary about any particular campaign, as we are working on how to get fleet consummation. So it would be better just to kick to touch on this one.

Gary Liebowitz - Wells Fargo Securities

Okay. And one last one, maybe for Steve. I think you had a number of A319s that I guess you placed since the last teleconference call. Could you talk about the process you go through when you evaluate, whether to release that kind of playing or to sell it or to part it out, because it almost seems like the engines are more popular than the aircraft at this point?

Steve Zissis

That’s correct, Gary. We’ve gone through that process. We’ve had a couple aircraft that we have decided to part out because the part out volume exceeded what we thought the net present value of the lease streams would be on our re-lease and so some of our older 319s and 320s, we have done that. And certainly you’ve seen on our classics, the 737, 500s we’ve also done that. But on our younger ones, we think there is much more life let and it makes more sense for us to continue leasing them to consider part out.

Gary Liebowitz - Wells Fargo Securities

Okay. Just a -- thanks Steve. Just a quick maintenance question for Gary. Do you have an operating cash flow number for the quarter?

Gary Dales

You mean…

Gary Liebowitz - Wells Fargo Securities

Cash flow from operation.

Gary Dales

Yeah. We’ll put that out with our 6K that will be out on early next week.

Gary Liebowitz - Wells Fargo Securities

Okay. Thank you very much.

Gary Dales

Around $60 million.

Gary Liebowitz - Wells Fargo Securities

You say $60 million?

Gary Dales

Yeah. I think it’s $60 million, probably about the number.

Gary Liebowitz - Wells Fargo Securities

Okay. Thank you.

Gary Dales

Thanks Gary.

Operator

Your next question is from the line of Richa Talwar with Deutsche Bank.

Richa Talwar - Deutsche Bank

Hello. Thank you for taking my question. First, I just wanted to know if you could share some comments on what you think of the regional space. This is in an area where you’ve been seeing a lot of activity, especially in the U.S. as major case are working to revamp the regional network. And I know, you’ve no regional aircrafts in your books right now but if there is sufficient demand, is this an area where you see opportunities for our future growth?

Colm Barrington

Sorry. I missed your name though?

Richa Talwar - Deutsche Bank

This is Richa.

Steve Zissis

Sorry Richa. Look we’ve -- we've looked at that space on and off for the last couple of years. And we’ve decided not to invest any capital in that area, not because it’s not an attractive market but just that the current market that we’re in, we’re just primarily the narrow-bodies on Boeing and Airbus have landed plenty of opportunities. So we think there is plenty of space that keep growing in the area that we are in.

Richa Talwar - Deutsche Bank

Okay.

Colm Barrington

And I think traditionally it’s been very concentrated in a relatively small number of carriers which really doesn’t suit the operation lease model that we go for, Richa. We like to have a very broad base of airlines using (inaudible).

Colm Barrington

Okay. Got it. Thanks. And then on your last conference call, Steve, I believe you mentioned that pricing was being bid up for aircraft especially in the sale leaseback market. I’m given an insight of new capital. So I was just wondering if you could comment on that trend if you’re seeing that continue and if so, if you would venture out of sale leaseback so to find better value via other transaction?

Steve Zissis

Yeah. Look that trend does seem to continue. There is a lot of capital that finding our aircraft leasing very attractive. And values have been bid up almost across the board and we’re seeing it in the midlife aircraft also.

In terms of origination, the market is big enough. It’s trillion dollar market. So there are opportunities that we find things that tend to be mispriced from time to time. And also we’re not bashful in terms of taking advantage of opportunities that are not sale leaseback i.e. buying from customers that don’t have lease attached. So we buy and make it and then use our expertise to put them on lease which we think we can add value on. We’ve actually committed to a couple of those type of transactions and are executing on them right now.

Richa Talwar - Deutsche Bank

Okay. Perfect. And then one more, I was hoping you could just tell us a little bit about the lease rate environment. And I know you spoke to it generally but where you’re seeing concerns and maybe you can particularly talk about the A319, A320 market. If that’s still stable if you’re seeing an uptick there?

Steve Zissis

Look our concern is definitely still with the A319. The A320 market is still very soft. Although we are seeing more and more clients find value in that aircraft type given what the lease rates are. So generally is demand starting to tick up a bit there.

And then if you flip to the other side of the market, the 737-800 is very strong right now. And in fact, we had a half-dozen more aircraft, we could satisfy some of our existing clients that need to lift right now. So we’re pretty optimistic on the Boeing product and hopeful that the Airbus product will continue to recover.

Richa Talwar - Deutsche Bank

Okay. Great. Thank you very much.

Gary Dales

Thanks Richa.

Operator

Your next audio question is from John Godyn with Morgan Stanley.

John Godyn - Morgan Stanley

Hey guys. Thank you for taking my question. So congratulations on hitting the debt target. I remember, I think when we first heard about that. It was supposed to be a 24-month target but you guys kind of flew through that. I was curious on the 3.5 times leverage that’s still a bit higher as you know than some of the public peers are targeting. Can you just give us a sense for sort of how you think about that level and how you conclude that that’s kind of the right level even though it is higher than some of the peers?

Colm Barrington

Well, I think that was our target, John as you see we have -- we got below that. We’re 3.2 towards the end of March.

John Godyn - Morgan Stanley

I guess, I thought that you had said, Colm, that that general range was still where you wanted to be or did I miss hear that.

Colm Barrington

I think what I said was we’re generally comfortable with the 3.2 but that we expected to actually improve a little bit over the quarter that we’re right in right now. I think we probably didn’t give ourselves the public targets we couldn’t achieve. So that’s why we set 3.5 to 1 but we were obviously working to better that target. And we’ve done that little quicker than we thought. We would like to get it down as bit lower just to make ourselves more comfortable.

John Godyn - Morgan Stanley

Okay. So something in 2 to 3 range is the right way to kind of think about it longer term going forward?

Colm Barrington

I think 2 is probably little bit lower than we would be going to. 3 is probably nearer the figure.

John Godyn - Morgan Stanley

Got it. Okay. That’s very helpful. Thank you. And then if I could just ask about sort of dividends and buybacks a little bit. Certainly, I saw that you sort of rolled over the buyback. I think the historical commentary on buybacks though has been one where you’re little bit reluctant just given the size of the flow. Is that still the perspective on buybacks or has that sort of philosophy changed at all?

Colm Barrington

I think that’s generally correct, John. We have a relatively small flows as you know. We have about 28 million shares outstanding and our share trading is anywhere from 100,000 to 200,000 a day. And so we are concerned about the flow. So we’re reluctant to buy in more shares. We have given ourselves $30 million approval of funds to buyback shares, should we see some any significant anomalies in the market. But I wouldn’t think we would be out in the market buying shares at even today’s price in any significant numbers over the current year.

John Godyn - Morgan Stanley

Okay. That’s helpful. So when we think about distributing capital to shareholders, it seems like the dividend as you mentioned is still the primary tool there. I'm just curious as you think about raising the dividend over time and clearly, you sort of have the capacity to do that. Colm, you also mentioned that you’ve been seeing a lot of lumpiness lately with the end of lease revenue as well as gain.

How do you -- on a go-forward basis, how do you think about sort of the right net income levels off of which to think about the payout ratio? Should we be thinking about somehow amortizing end of lease revenue on an annual basis as you think about your dividend capacity or do you sort of use a more conservative metric that excludes end of lease revenue and gains as you think about raising the dividend?

Colm Barrington

I think it’s both earnings and cash, John. And as you can see, we have approximately $2 million in free cash today. As we leverage that up by 2.5 to 1 whatever and grow the portfolio. Hopefully we’ll grow income and cash being totaled by that leverage to about $200 million and that will give us the capacity to -- with the cash capacity to increase the dividend level.

John Godyn - Morgan Stanley

Are there any ratios that we should be thinking about that we can kind of tie to?

Colm Barrington

Don’t think we want to get committed to that John because there could be hold on other things in the market. We could be seeing the financial situation change. We could be seeing more opportunities to spend cash and generate more earnings on increased basis. I don’t think we want to get into committing ourselves to any particular ratios.

John Godyn - Morgan Stanley

Okay. That’s helpful. And just one more for Steve, if I can, Steve, clearly there is sort of bullish tone on what you’re seeing in the market place here on the margin. I just want to make sure that that’s sort of reflective of a core demand improvement. In other words, we are entering a seasonally better time now. And I just want to make sure that your comments sort of aren’t just reflecting that seasonality. But there's real core demand improvement kind of across the board which seems to be what your comment suggest?

Steve Zissis

Well. Look, in my opening statements, I did suggest that there is really in underlying strength to the market that thus continues the priced to be upside. So demand is better than we had expected. But my comments are limited to what we currently see in the next three months. It’s very hard through really project out further than that. So John I think it is easy to temper with seasonal demand here.

John Godyn - Morgan Stanley

Got it. Okay. Perfect. That’s very helpful. Thanks a lot guys.

Colm Barrington

Thank, John

Operator

(Operator Instruction) Your next question is from Glenn Engel with Bank of America Merrill Lynch

Glenn Engel - Bank of America Merrill Lynch

Hi. Good morning. First question, last year, you took some impairments and you said you probably reverse some of those and it would become gains later with much of the first quarter gains tied to that impairment or was that tied to the most recent sale?

Gary Dales

Well. when we sold -- when we impair the aircraft, they decline down to the value that we necessarily in essence sold them for. A portion of our in the lease income does relate to the aircraft that were indeed impaired and in fact recovers substantially all the impairment in the first quarter.

Glenn Engel - Bank of America Merrill Lynch

So the impairment reversal showed up in the end of lease payment rather than the gain on the sale of aircraft?

Gary Dales

That’s correct.

Colm Barrington

And that plan is in the country requirement where you have to separate the lease from the aircraft.

Glenn Engel - Bank of America Merrill Lynch

Second question is with the plane start coming off lease and being remarketed or re-leased, can you talk about what type of drop-in lease rate you're seeing versus what is typical?

Steve Zissis

Yeah. Glenn, on the 800s we’re seeing vertically no drop and a slight uptick. And on the 319s we’re seeing drop in the 30% range as we have indicating in prior calls. So pretty consistent with what it has been happening in the last year.

Glenn Engel - Bank of America Merrill Lynch

You’re seeing plane that the first ones that are not seeing a drop at all even though they’re older and being released.

Steve Zissis

No, the 800s.

Glenn Engel - Bank of America Merrill Lynch

Yeah.

Steve Zissis

We’re not seeing a drop at all. They are pretty much being looked up at the same rate.

Glenn Engel - Bank of America Merrill Lynch

Even though the planes are older.

Steve Zissis

Correct. And the 319s, we’ve seen a drop in the 30% range.

Glenn Engel - Bank of America Merrill Lynch

Okay. And then three, on the end of lease revenue, I know it’s very difficult on a quarterly basis. One is there was seasonality to it that you usually because the winter quarter is weaker. You tend to see a greater and in the summer quarter it’s less. And two, is there any sort of -- it was $50 million last year. Is there any range you can give us, as what’s the normal amount for a full year when we look forward?

Colm Barrington

Well. I think probably the way it’s accounted for you, probably we will see more in the fourth and first quarters because that’s when we try and get our lease returns. We try and get aircraft to come back in the winter period, so we could then put them out again in the summer, the new lease. There aren’t too many leases present in July and in August. Is there a trend? I can’t really give you a number. I think, if you look back at the last two quarters that’s been $45 million I think in the whole 2012 as well as you are seeing about by $50 million. But it will be higher than this year. We can’t really forecast at this point of time. But it will. It’s going to be very close anyway because we got $45 million that we have already either…

Glenn Engel - Bank of America Merrill Lynch

And I’m saying is that $50 million that you saw in 2012, give or take $10 million, is that what we should always assume on an ongoing basis, or are these 2012, 2013 usually high year for end of lease period?

Colm Barrington

We can’t be sure because you don’t know what your unexpected lease returns might be. So it’s very difficult to give you a forecast to that upgrade.

Steve Zissis

I think we are comfortable with the $15 million we were forecasting for second quarter.

Glenn Engel - Bank of America Merrill Lynch

Yeah.

Steve Zissis

And as Colm mentioned, we have $30 million in the first quarter and it’s difficult to anticipate what’s beyond that.

Glenn Engel - Bank of America Merrill Lynch

And how much of it happens just because planes naturally just always come off lease and you re-market them, and you have an end of lease payment there and how much of this $50 million is coming from just the surprises?

Colm Barrington

Well, the full $50 million in the quarter we currently in is on schedule lease returns.

Steve Zissis

Schedule lease, obviously. Most -- a lot of it from last quarter was on schedule.

Colm Barrington

On the schedule, yeah.

Glenn Engel - Bank of America Merrill Lynch

So what’s going to always -- if I’m going to look at the scheduled lease returns I should always assume that there is end of lease tied to those scheduled returns and the unpredictability of the unscheduled

Colm Barrington

I think that’s right, that’s correct. The difference is not all of the leases pay and maintenance reserves, which is primarily where the end of lease comes from. Those other leases contain payments of the end, either or two were from the lessor and so it’s really a measurement of the condition of the aircraft and time.

Steve Zissis

And all other factors, for example, the lease is required to return as brand and as new aircraft you may have drawn down the maintenance cost, before they return the aircraft. So there are so many holes in the air, this one is better. It’s very difficult to give you a precise number.

Glenn Engel - Bank of America Merrill Lynch

Thank you very much

Operator

At this time there are no further audio questions. Are there any closing remarks?

Steve Zissis

Thank you for joining us for the Fly Leasing first quarter earnings call. We look forward to updating everyone again next quarter.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect at this time.

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