AerCap Holdings' CEO Discusses Acquisition of International Lease Finance Corporation (Transcript)

| About: AerCap Holdings (AER)

AerCap Holdings N.V. (NYSE:AER)

Merger & Acquisition Call

December 16, 2013 05:00 PM ET

Executives

Peter Wortel - Head, IR

Aengus Kelly - CEO

Pieter Korteweg - Non Executive Chairman

Keith Helming - CFO

Analysts

Arren Cyganovich - Evercore Partners

Jamie Baker - JPMorgan

Mark Streeter - JPMorgan

Gary Liebowitz - Wells Fargo Securities

Justine Fisher - Goldman Sachs

Scott Valentin - FBR Capital Mark

Helane Becker - Cowen

Richa Talwar - Deutsche Bank

Ryan Zacharia - Jacobs Asset Management

Roger King - CreditSights

Brian Monteleone - Barclays

Joe Gill - Goodbody

Peter Wortel

Thank you, operator. Good day everyone and thank for joining us today on such short notice. With me today are Pieter Korteweg, the Chairman of the Board of AerCap Holdings, Aengus Kelly, AerCap’s CEO, and Keith Helming, AerCap’s CFO. As you are aware, in this call we will discuss the agreement we have entered into with AIG to purchase ILFC. Before we begin with the presentation, let me take you through our declaimer.

I want to remind you that some statements made during this conference call that are not historical facts may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. In addition, this conference call contains time-sensitive information that reflects management's best judgment only as of the date of the last call. AerCap does not undertake any ongoing obligation, other than that imposed by law, to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after this call.

For further information concerning issues that could materially affect performance related to forward-looking statements can be found in AerCap’s press release dated December 16, 2013. A copy of the Press Release and conference call presentation are available on our website at aercap.com. This call is open to the public and is being webcast simultaneously at aercap.com and will be archived for replay.

I'll now turn the call over to Aengus Kelly.

Aengus Kelly

Thank you, Peter. Good afternoon and good morning to those of you in the U.S. Thank you all for joining us on this important call. This morning AerCap signed a share purchase agreement with AIG to acquire 100% of the share capital of ILFC. The transaction is subject to customary closing conditions and is expected to close in the second quarter of 2014. Under the terms of the agreement, AIG will receive $3 billion in cash, 97.6 million shares in AerCap.

Based on the closing stock price of AerCap’s ordinary shares on December 13, 2013, the total consideration has a value of approximately $26 billion, including ILFC’s net debt of approximately $21 billion. We expect to fund the cash portion of the consideration through the issuance of the long term bonds and the cash of the combined company. As part of the transaction, all existing ILFC deferred and current tax liabilities, approximately $4.1 billion will be assumed by AIG.

AIG will also provide AerCap with a committed five-year $1 billion unsecured revolving credit facility. This facility was signed yesterday. In addition, UBS and Citibank have provided a $2.75 billion committed acquisition facility to backstop the funding of the transaction. This was also signed yesterday.

At this time, I would like to invite AerCap’s Chairman, Pieter Korteweg, to make a few comments on behalf of our Board.

Pieter Korteweg

Thank you, Gus. Thank you again ladies and gentlemen for joining us and for your interest in AerCap. Before I turn back the mic to Gus Kelly who made this all happen and who will fill you in more detail on the transaction, let me as Chairman of AerCap’s Board since its inception in 2006 give you the Board’s perspective. This is a truly exciting and refining transaction for AerCap. It will create the leading independent aircraft lessor and it positioned AerCap to drive truly attractive returns for its shareholders.

Actually, the transaction will be accretive for our shareholders from day one. The Board is pleased is express its strong support for this transaction. The board has gone through a thorough and in-depth analysis and the review on the opportunity and its benefits and its risks and the Board is unanimous in its decision to purpose the transaction for approval to our AGM of February 13, 2014. The transaction also has the full support of our largest shareholder, Waha of Abu Dhabi. They have participated in the process through their representation in the Board and Waha has also signed a voting agreement to support the transaction at our upcoming AGM.

Our CEO, Gus Kelly, and his management team will oversee this transaction going forward. His team has consistently demonstrated superior earnings performance. They have committed their continued services and leadership in order to unlock the value for our shareholders that this new combined company has on offer. Our Board has complete confidence in the ability of management to execute on this acquisition, to follow-through on the integration of ILFC and to match the combined company, aimed at driving shareholder value.

The board also looks forward very much to working with AIG as a substantial investor and we are looking forward to working closely with their two representatives whose names I know, but I cannot yet disclose them. They will be on the Board to join the Board when the transaction closes somewhere in New Year and they are both most welcome. Let me in this respect end with a note. Part of our shareholders agreement with AIG is that AIG’s voting power will in most instances be limited to less than 50% of their prospective 46% shareholdings in AerCap.

And now I would like to turn the discussion back to our CEO, Gus Kelly and to CFO, Keith Helming, who will take us through strategic rationale of the transaction. Gus?

Aengus Kelly

Thank you, Pieter. AerCap’s acquisition of ILFC will create the leading global franchise in the aircraft leasing industry. This transaction presents a unique strategic opportunity to bring together the outstanding and experienced personnel from both companies and two attractive portfolios of modern aircraft on lease to a highly diversified customer base. Further, and very importantly, we believe AerCap will now have the most attractive order book in the industry. With these combined resources, along with a strong liquidity profile, we will drive high levels of stable long term profitability and cash flow for the benefit of all of our stakeholders.

As Pieter referenced, the transaction will be immediately accretive to AerCap’s earnings per share and will create a company with a very attractive financial profile. We expect our annual EPS run rate to be in excess of $4 per share and the combined company will generate $3 billion of annual cash flow from operation.

These numbers are underpinned by the key fact that over 80% of the expected lease revenue for the next three years is already contracted. With $41 billion in assets serving over 200 airline customers globally, the combined company will have industry leading scale and financial strength. Furthermore, we believe the company will have the most attractive order book in the industry in terms of aircraft type, pricing and delivery dates. This scale and financial strength will give the company a competitive advantage in the growing industry of aircraft leasing, As it will enable us to address the needs of our commercial airline customers and the OEMs as a partner capable of providing them with large scale fleet solutions.

This will be particularly important to our customers in North America and Europe, who are in the process of re-fleeting, as well as our customers in the emerging markets who are satisfying rapid growth in air travel. Both AerCap and ILFC have distinguished themselves with their ability to execute large-scale leaseback transaction and place new equipment orders that few, if any of our competitors have the scale and financial strength to match. In summary, if you are customer of AerCap or ILFC, you should be very pleased to know that AerCap will have the scale and financial strength to be now more than ever the go-to partner of commercial airlines, as they manage their expansion and re-fleeting into newer more efficient aircraft.

Separately, meaningful opportunities exist to better optimize ILFC’s fleet, stemming from AerCap’s position as one of the most active portfolio managers in the world, having sold over 270 aircraft in the last several years and our ability to utilize AeroTurbine's part out and engine leasing capabilities to maximize the value of the order aircraft in the fleet.

On the cost side, aircraft leasing is a very scalable business and the transaction will provide substantial opportunities to produce material cost savings and operating efficiencies. We expect to generate approximately 100 million of annual cost savings by end 2015. The combined company will also enjoy significant tax benefits, as the ILFC assets are relocated to Ireland, increasing AerCap’s already substantial presence in Ireland.

Turning to the aircraft portfolio and the new order book, we believe the aircraft portfolio of the combined company will generate high level of sustained profitability for many years to come for a number of reasons. Firstly, at a purchase price of approximately $5 billion, we are acquiring the ILFC portfolio at an implied transaction valuation of $26 billion. This is approximately $6 billion below the September 30 independent appraised value of the portfolio.

Secondly, the order book of ILFC is the most attractive in the industry. It is deeply into money reflecting further imbedded value in the transaction. The pricing of this very attractive, new technology aircraft and delivery slots could not be replicated by dealing with the OEMs.

Third, the combined portfolio will be heavily concentrated right from the outset in the most modern fuel efficient aircraft in the world. By value, almost 90% of the portfolio on closing will be composed of A320, A330, Boeing 737 and Boeing 777 family aircraft.

Now, as a result of the mark-to-market of the book values, the relocation of the aircraft to Ireland and AerCap’s portfolio management expertise, we will have full flexibility to manage the ILFC portfolio and sell down older, out of production aircraft to drive sustainable future profits. As I mentioned, AerCap is a proven leader in portfolio management and has been among the most successful and active buyers and sellers of aircraft in the world. We have deep secondary market expertise across all the aircraft types and vintages in the IFLC portfolio.

Furthermore, AerCap built AeroTurbine into the second largest participant in the global aftermarket before selling it to ILFC. The combination of AerCap’s culture of disciplined risk and portfolio management, AerCap and ILFC’s deep secondary market expertise and AeroTurbine’s end of life asset management capabilities, will position us to maximize the value of the older aircraft.

Now very importantly if you were a lender or bond holder, you should know that a prudent financial strategy has been at the core of AerCap success. We have consistently employed a balanced approach to equity and debt financing and we are doing so again in this transaction funding the purchase price with a mix of cash and share. You should also know that this transaction has been crafted to ensure that the capital structure of the company is extremely robust. We will have an opening liquidity position of approximately $5 billion and we expect to generate over $3 billion of operating cash flows in the first 12 months, resulting in overall liquidity of approximately $8 billion.

Further, we expect the combined company to have deep access to all funding markets, including the unsecured and secured bond markets, the commercial bank market as well as well the ECAs and Ex-Im Bank. Both AerCap and ILFC have loyal investor followings in the capital markets and strong track records of accessing all of these markets. We believe there is capacity for multiples of the expected financing need of the Company going forward. Combined, AerCap and ILFC have raised over $39 billion of financing in the last several years.

We will have a very manageable capital expenditure of around $3 billion per annum for the next three years, primarily to fund deliveries of new aircraft which, will be partly offset by approximately $1 billion in annual aircraft sales, which equates to AerCap’s current level of sales activity. Given our combined access to the global financing markets and our strong contracted operating cash flow, we view this as a very manageable amount. Maintaining a strong financial profile is of paramount important to AerCap, and we believe this transaction will not only create the industry leader, but will also strengthen our financial profile and access to all the global financing markets.

With that I will turn the call over to Keith Helming, our CFO, to go through some of the pro forma financials before we open the Q&A session.

Keith Helming

Thanks a lot Gus. Good morning everyone. I will start on Page 12 of the presentation. This page provides a financial summary for the combined company. You’ve already heard of few of these numbers. The combined company will have approximately 1700 aircraft, including the order book serving over 200 lessees. Total assets will be approximately $41 billion, of which $35 billion is the aircraft assets.

The initial capital structure of the company will include around $31 billion of debt and between $5 billion to $6 billion of equity. Total revenues are expected to be approximately $5 billion. Once the aircraft assets are transferred and duplicate infrastructures removed, the projected profit of the combined company is expected to be $1 billion per annum. Cash flow generation will be very strong at around the $3 billion level per year.

Moving to Page 13, this page again highlights the pro forma assets and capital structure of the combined company. Based on the price paid and the resulting write down of the assets, the initial debt-to-equity ratio will be approximately 5.5:1. Although this leverage is higher than the level that AerCap manages its business, the higher leverage is strictly related to purchase accounting and the cash flows of the combined company remain unchanged.

The strong profit and cash hold generation of the combined company is expected to drive a reduction in leverage. Within two years, we expect a reduction in the debt-to-equity ratio to around 4:1 and within four to five years a reduction to approximately 3:1 is expected. Both the planned reduction in leverage and future profits are underpinned by the fact that approximately 85% of lease revenues are contracted for the next three years.

Page 14, as mentioned, projected earnings for the combined company is expected to be very strong. The transaction includes an attractive purchase price, which allows the assets and liabilities to be properly fair valued as of the closing date. Fresh start accounting helps drive appropriate cost levels such as depreciation. With appropriate cost levels combined with the contracted revenue, the profit generation of the company is enhanced. On an annual basis, the benefit from fair value accounting is expected to be approximately $300 million per year.

In addition, the combination of AerCap and ILFC business will allow certain cost synergies to be achieved. The best of both businesses will create the operating platform for the combined company, which will help eliminate duplicate cost. As AerCap is already located in Ireland the assets will be transferred to Ireland in order to align with the operating platform of the company. This results in a reduction in tax expense. Both the cost and tax synergies are expected to provide after tax earnings of approximately 300 million per year, once execution is completed. All of this is expected to drive strong profit generation with run rate earnings per share of $4 or more and a run rate return on equity from approximately 15%.

Turning to Page 15, as discussed, we expect the combined company to have deep access to all funding markets. Over the past few years, both companies have raised significant amounts of capital, many times the expected financing needs of the combined company over the next few years. The amount of capital expenditures for the next three years is approximately $3 billion per annum, which is similar to the level AerCap has raised on a standalone basis.

To support this level of capital requirement, AerCap has strong access to the capital market’s significant operating cash flows as well as cash generations from aircraft sales. AerCap plans to continue its standard approach to portfolio management by selling assets in order to keep an optimized portfolio. The cash generator from these sales will also provide additional liquidity support for the company. The expected level of sales per annum is a $1 billion for the client company which again is similar to the level that AerCap has executed on a standalone basis. Given these sources, the capital position of the combined company is expected to be robust.

Page 16; the liquidity of the combined company will be strong. As mentioned the annual operating cash flows excluding AerCap sales will be approximately $3 billion per year. The combined company is expected to have over $4 billion of revolving lines of credit, which we view as backup liquidity. In addition, unrestricted cash is expected to be over $1 billion as of the closing date.

Our targeted liquidity position is to maintain sources of liquidity for the next 12 months equal to 1.2 times contracted uses. Sources include available lines of credit, unrestricted cash and operating cash flows. These sources are expected to be approximately $8 million as of the closing date. Uses include both contracts to capital expenditures as well as contracted debt maturities.

With regard to the financing plans going forward, as both companies have created strong access to the funding markets, we plan to access capital from both the unsecured and secured debt markets. The approximate mix of a debt structure is expected to be 40% secured and 60% unsecured going forward.

On Page 17, this page compares operating cash flows to contract the debt maturities. The amount of operating cash flows is relative to contracted debt maturities is well balanced for the combined company. Over the past few years, the ILFC team has done an outstanding job setting up their capital structure, so that the debt maturities are aligned with the operating cash flows of their company. This limits the required amount of refinancing for the client company and focuses the issuance of new debt through the funding requirements needed for purchases of the most in demand new technology aircraft. As result, the liability structure of the combined company is very stable.

Those are the key pro forma metrics for the combined company and at this point I’d like to open up the call for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]. We will now take our first question from Arren Cyganovich from Evercore. Please go ahead.

Arren Cyganovich - Evercore Partners

First, I'll say congratulations on the transaction. And my first question is around the leverage. I was surprised by the 5.5 times debt-to-equity and you clearly laid out a way to get down there. But I guess, initially, I want to hear your thoughts about how this may near-term impact your funding. But I guess a lot of this has already been locked in by your credit facilities, but if you'd talk a little bit about that leverage level.

Aengus Kelly

The first I want to say about the leverage level is that the cash flows of the Company, both companies remain unchanged. So the cash generation is still there. The 5.5 is higher than the normal level that AerCap operates at but again, as I mentioned, it’s strictly related to purchase accounting. The write down of the assets and resulting write down of the equity results in this mathematic of impact if you will. But again, this strong profit generation and the cash generation, which will used to pay down debt decreases the leverage very, very quickly over time.

Keith Helming

Maybe one thing to note is that ironically, the less we pay for the business, the higher the debt equity ratio would be on closing. It’s a function of the very low purchase price; we pay that is $6 billion below appraised values. And you see then how rapidly it goes down to the function of the contracted cash flows of the business and the profitability that those contracted cash flows will generate. So, it really a function of the very low purchase price.

Arren Cyganovich - Evercore Partners

And then secondly, Slide 10 shows your revenues coming down, at least from a projection level and pro forma through 2015. I'm assuming that's just through your annual $1 billion in aircraft sales. How does that impact your expectations for the bottom line, the earnings? Is it essentially a lot that going to be offsetting your higher funding costs associated with the deal?

Aengus Kelly

The Page 10 just shows the contracted CapEx as of now. It doesn’t include any new purchases that might occur after the closing date of the Company.

Operator

We will now take our next question from Jamie Baker from JPMorgan. Please go ahead.

Jamie Baker - JPMorgan

Mark Streeter is also on the line; may have a couple of follow-ups. First question from me -- first two questions, actually; just in terms of the Chinese consortiums and their existing interest in this space, is there any interest and/or limits as to whether you could bring them in as potential partners in the future? And then second, just as we think about the optimal size, and I guess this is more of a hypothetical question, but at what point does the leasing company potentially become too big? And I'm not at all suggesting this is the case here, but I'm presuming it's something that you've confronted internally over the last couple of weeks or months. Is there an optimal size for the Company? Any color on that and then a follow-up from Mark.

Aengus Kelly

First let me deal with our ownership profile here. We have to deal closed at this point Jamie. There is no other partner being brought in, Chinese or otherwise. It’s done. In terms of the optimal size of an aircraft leasing company, of course this is something we looked at extremely carefully, but we also looked at the operating capabilities of the platform and AerCap buys, sells or leases an airplane very three days on its own. ILFC does the same on a basis of every two days. And we have two of the leading platforms in the world. So, we are extremely comfortable with the capabilities of this platform, along with of course the addition of AeroTurbine to deal with the order aircraft to very efficiently manage this number of airplanes.

Mark Streeter - JPMorgan

Just wondering if I can jump in with a question on how you envision sort of accessing the capital markets going forward? Target ratings, you had mentioned in the past AerCap used unsecured debt as sort of an opportunistic part of the capital structure and equity substitute and so forth. Does that change now that you’re brining on so much public debt with ILFC? Are you going to be view unsecured debt differently going forward and I’m just wondering about funding as well? What would be done out of the AerCap box or more down at the ILFC level? I’ll leave it at that.

Aengus Kelly

I’ll start. Again, we have worked with the rating agencies over the past couple of months to get an idea as to how they would view the combined company. We worked with them very closely and provided a lot of analysis and lot of information. We can’t comment yet on what their ultimate outcome will be, but we are comfortable that the ultimate outcome and ratings will allow to access the funding markets that we need to do so.

Both companies have created their great access as I said to the funding markets. AerCap previously looked at just secured debt and opportunistically plan to do unsecured debt whereas the ILFC model was somewhat different. So, we think that accessing both lines and both forms of capital is the best interest of the combined Company going forward. And I mentioned, again I think just based on the projections that we have at this stage that the balance will probably be around 40% secured and 60% unsecured. It may change obviously a little over time but I think that will be the levelized position.

Mark Streeter - JPMorgan

Great. And just where will new debt be issued going forward at the AerCap level? At the IFLC level, some combination of both? How should we think about that?

Aengus Kelly

We’ve spent a lot of time putting and working on a structure for the combined company and effectively we’re going to have guaranty structures in place so that the entity, all the entities will more or less benefit from cross guaranty. So, it will be effectively issuance from the combined company level, with obliviously support of both, ILFC and AerCap behind it.

Operator

Our next question comes from Gary Liebowitz form Wells Fargo Securities. Please go ahead.

Gary Liebowitz - Wells Fargo Securities

Gus, you've done a great job in keeping the fleet young over the years; recall the ALS transaction last year. You are acquiring now a lot of out-of-production planes and smaller narrow bodies, which probably don't optimize the fleet. Could we see substantially more than $1 billion of aircraft divestitures annually over the next couple of years?

Aengus Kelly

First of all Gary, the average age of the fleets, once we close, in terms of buy value will be around 7.5, 7.6 years of age. So still a very young fleet. So, yes you will have maybe a big number of older out-of-production aircraft. But because of the price we are paying, the actual carrying value of those older assets is very limited. So, actually selling a $1 billion will actually be quite a big percentage if we focus at an older aircraft.

Now of course as you’ve seen in the past Gary, look we are very focused on opportunities to dispose of airplanes where we think it meets our strategic objectives in terms of asset quality, price we get for the airplane, et cetera. So it’s something that we could potentially do, but at the moment, for the sake of our pro forma analysis, we’re looking at a $1 billion a year which will be focused on the older technology assets. But it’s worth noting that as I said, by value over 85% of the fleet will be focused on 320, 737, 330, and 777 equipment, the most in-demand. So there is a very big distinction between the ILFC of old and today, where I guess there was a large quantum of airplanes that were old and out of production, but that also corresponded to a high value. Because of the impact of the purchase accounting and the low purchase price we paid, that is not the case here.

Keith Helming

The only thing I’ll add here Gary is that thorough the fair value process we will be making distinct differences between in production aircraft and out of production aircraft. And the benefits from fair value accounting is we can put in what we really think the values are. We, on the out of production equipment, we will be reducing the economic life and we will be reducing the residual value. So a lot of the value will be associated with the in production and not the out of production aircraft, regardless of what today’s book values are.

Gary Liebowitz - Wells Fargo Securities

Okay, and Gus in the past you’ve been a little bit reluctant to place large orders with the manufacturers, price escalation on certain financing environments. How comfortable are you with the ILFC order book and the price you’re paying and is it the embedded price that makes it attractive and mitigates those other risks?

Aengus Kelly

Gary we have not placed OEM orders in the recent past, but we have played very large orders in prior years. It’s just that we always -- we have felt recently there has been a better risk reward profile for us in doing the large scale sale leasebacks recently. Now frankly in this transaction, the order book is the jewel in the crown. ILFC lost a launch customer for the 350 and the 787 and the NEO and because of that and the associated delays with those aircraft platforms, particularly the 787 and the 350, the pricing, the delivery slots that ILFC have are unbeatable in the market. And that is why it is so attractive and frankly it really as I said, it is the jewel in the crown of the whole transaction.

Operator

We will take our next question from Justine Fisher from Goldman Sachs. Please go ahead.

Justine Fisher - Goldman Sachs

So the first question that I have is just a follow-up on Gary's question. So you talked about fleet optimization, but the $1 billion of asset sales is going to be in line with what AerCap did before. We did take that to mean that because of the lower value for a lot of ILFC's older aircraft, the optimization process is just via selling more aircraft every year. So you get rid of a larger number of planes, even though the notional is still high, because with AerCap previously, you may have been selling aircraft that were worth more because if the dollar amount is the same, it doesn't seem like there is a rapid focus on optimization, but is that -- is optimization in terms of number as opposed to just the value?

Aengus Kelly

That’s correct Justine. Now of course we will if we see the -- as I said, this is for the pro forma modeling, 1 billion year. If we find that there is a very attractive opportunity we will accelerate that process. But we are extremely comfortable with the carrying value. So actually the $1 billion will equate to a substantial number of aircraft again, as a function of the low purchase price that we have got on this deal.

Justine Fisher - Goldman Sachs

Okay. And then as far as reducing the debt-to-equity ratio going forward, I know, Gus, you spoke about the rapid decline in this, just as the purchasing accounting kind of rolls off. But on the table in the presentation, the leverage gets down to 3 times, which is about where AerCap and ILFC were as standalone companies in four to five years. So that's still four to five years from now. Is there anything that AerCap might do in the interim, like repay additional secured debt or unsecured debt prepay, I should say, in order to more rapidly reduce the leverage level of the combined company?

Aengus Kelly

We could certainly look to do that obviously and acceleration of the aircraft sales would drive that of course Justine, and that’s certainly something we’ll look at but the target, I want to be clear on this, the target for this company is to go back down towards that 3:1 level. As Keith mentioned it is artificially high on day one purely as a function of the very low purchase price. So it’s conscious of that. But a prudent financial strategy has been at the core of our success from our inception and it is something that we are extremely focused on as we go forward.

Keith Helming

The only thing I’ll add there is it obviously a 3:1 leverage position is very, very conservative. It’s that’s obviously where AerCap has ran in the past. As you can see by the pro forma metrics we do drop to 4:1 very quickly within 18 months. So we drop actually below 4:1 early on within two years. So we get down to a less risky position very quickly.

Justine Fisher - Goldman Sachs

Okay. And then on the cash side the presentation indicates $1 billion of pro forma unrestricted cash, but I think the combined company had about $2 billion before. And I think there is only $250 million of cash, if my math is correct, going to the transaction. So where did the -- what goes -- what's happening to the rest of that cash? Or are my numbers wrong?

Keith Helming

Part of the cash will be used to fund the purchase price effectively. So the cash portion of the purchase price of $3 billion will be cashed from the existing companies, as well as issuance of new debt.

Aengus Kelly

I think Justine, it’s also worth noting though that the combined company will receive $1 billion unsecured line that doesn’t exist in there today and that is a crucial part of the transaction that we negotiated with AIG, that we have a five-year unsecured revolver from AIG for $1 billion and that’s a tremendous boost of liquidity position of the Company that isn’t there today in either Company’s balance sheet and that brings the total backup lines of credit to over $4 billion, plus then the unrestricted cash of $1 billion plus.

Justine Fisher - Goldman Sachs

Okay. But the cash portion that’s not in the committed financing in the press release is $250 million, right?

Keith Helming

Excuse sorry the $250?

Justine Fisher - Goldman Sachs

Sorry, there have just been headlines that there’s committed financing of $2.75 billion backup financing. So aside from that, it's only $250 million but pro forma unrestricted cash is $1 billion?

Keith Helming

That’s correct, yes. And I just make the point that the $1 billion again meets the, what we’re referring to as liquidity standard for the combined company, which again is having sources of capital equal to 1.2 times uses for 12 months period.

Justine Fisher - Goldman Sachs

Okay. And then, sorry, one last question. Just on the synergies, can you talk to us about where the $100 million might come from and are you going to keep the LA office of ILFC open or just de-hub, as they say in airline speak that office or will it close down and everything gets moved to Ireland? And where else are the synergies coming from?

Keith Helming

We obviously -- we’ve meaning AerCap are obviously located significantly in Ireland and obviously the Netherlands as well. So we will expand certainly the Irish base and increase the organization structure there. We will be putting together integration teams made up of people from both ILFC, as well as AerCap to determine first of all the timing of the integration activity, as well as what functions and what services are better performed at the various locations and that will be put together in a very detailed level and be prepared prior to the closing of the transaction.

Aengus Kelly

But, Justine, there will continue to be a presence in LA.

Operator

We will now take our next question from Scott Valentin from FBR Capital Markets. Please go ahead.

Scott Valentin - FBR Capital Markets

Good afternoon and congratulations on the transaction. Just two questions. One, AerCap traditionally has been pretty nimble. Gus, you talked about being optimistic in aircraft leasing, switching from OEM, when that's attractive, to sale/leaseback. Just wondering now, given the size of the combined Company, does that limit the ability to be nimble? And the second question was around re-leasing. Just curious as to how much the fleet is due for re-leasing, call it for the next two years and what percentage has been placed?

Aengus Kelly

Sure. First of all in the terms of nimble, I think this is really the most opportunistic deal we’ve ever done. We saw an opportunity in the market, damn, that will probably never be there again to acquire a fantastic team, a fantastic portfolio of aircraft and the most attractive order book in the industry, right at the time that industry cycle is turning as you’ve heard me say in previous calls. And if you look at the IATA announcement last year -- or last week, excuse me -- 2014 is expected to be record earnings for the airlines. So we are picking up prime real estate in big size at a great price at the right point in the cycle. So I think this really is the ultimate validation of our strategy of being nimble and opportunistic.

Now as we go forward, it’s extremely important that we maintain that market focus and very nimble features of our platform and that is something we will certainly do. If you look at our track record, even if we were just to go with what AerCap has done, with just AerCap’s fleet we’ve managed to sell 2017 aircraft in the last several years. That’s with a fleet that’s much smaller than this ILFC fleet. So I’m very confident that as we go forward that will continue to the case.

Scott Valentin - FBR Capital Markets

Okay. And just on the re-leasing issue, just -- 1% of fleet.

Aengus Kelly

Sorry, re-leasing issue, yes, of course. On the re-leasing issue, the vast majority of the book is already placed for 2014 and into 2015 it runs at about an airplane a week, which for a platform of this size is a very manageable task. As I said just standalone at the moment, AerCap is moving, buying, selling or leasing an airplane every three days. So that is a manageable task in this platform.

Scott Valentin - FBR Capital Markets

Okay. And then one final question; have you reached out to ILFC's large customers, just to check with them, make sure everything's okay with them?

Aengus Kelly

Well, 80% of the ILFC’s customers are AerCap’s customers as well, but it would not have been appropriate to reach out them prior to the announcement of the transaction, but I can assure that communicaes went out to all of our airline customers and as soon as the transaction closed this afternoon.

Operator

We will now take our next question from Helane Becker from Cowen. Please go head.

Helane Becker - Cowen

One, Gus, I think in the transaction, AIG can sell their shares after the lockup period expires. Do you expect them to sell their shares? Or are there provisions that will enable them to keep the shares if they chose to?

Aengus Kelly

Well, AIG can hold onto the shares and for as long as they would like, Helane. The way the lockup works is that, it’s post-closing. So nine months post-closing. So if closing is say April or May of 2014, it will be 2015 Q1 before they can sell their first block of shares, Q2 2015 for the second block and Q3 2015 for the final block. So, it’s a quite a distance into the future. It’s a substantially longer lockup than it would be case for typical IPOs for example. What AIG will do, post the lockup period, I can’t tell you.

Helane Becker - Cowen & Company

Okay. But they don't have to sell, that's my question?

Aengus Kelly

Absolutely not. And AIG are a very experienced investor in this sector and we take it as a vote of confidence that they took so much stock in the company, because they can see the tremendous value that will be created here by combining the two platforms.

Helane Becker - Cowen & Company

And then are there any debt covenants in your existing debt that we should be aware of, that the transaction would trip that you would have to renegotiate?

Aengus Kelly

There is minimal amounts of debt covenants that have to be adjusted if you will. The most significant would be on the ILFC side and there is one particular revolver that requires a change in the debt equity ratio as a result of the impact from purchase accounting, but that was obtained during the previous transaction and we expected it to be so here as well.

Helane Becker - Cowen & Company

Okay. And then will you have -- I notice you haven't really talked about the write-down figure you're anticipating taking, I guess, on the older ILFC equipment. Will that be on closing? Will you give us more information then? Or how can we think about that?

Aengus Kelly

The fair value process will be finalized as of the closing date and we will go through Aircraft by Aircraft analysis. I mean obviously we’ve done it already on a preliminary basis, but we’ll do it again as of the closing date and we’ll determine what the actual fair value of each asset is worth, not just the aircraft assets but all the other assets and all the other liabilities and that will result in effectively the fair value of the equity day one and we’ll provide again a lot of information as it relates to the fleet. But I will mention again as I said before and that is this process, this fair value process allows us to put the proper values on for the in-production aircraft as well as the out-of-production aircraft, so that the portfolio is well stated in terms of these book values going forward.

Operator

We’ll now take our next question from Catherine O'Brien from Deutsche Bank. Please go ahead.

Richa Talwar - Deutsche Bank

It's actually Richa Talwar. Most of my questions have been addressed, but just some housekeeping issues. First, on your guidance for the run rate $4 EPS, when you do you expect to achieve that, is that 2014?

Keith Helming

The first full year, which will include all of the synergies we expect both on the cost side and the tax savings side, will be 2016. Those benefits will be accruing over the first 18 months as we execute on the synergies and the $4 will be there by the end of 2015.

Aengus Kelly

But it’s immediately accretive from day one. So, from the get go, the EPS starts accreting up to and above the $4 a share.

Richa Talwar - Deutsche Bank

Okay, got it. And then the share count that I'm backing into post-deal is going to be $250 million. Is that right?

Keith Helming

No. We currently have 130 million shares in AerCap and will issue 97.6 million new shares in this transaction. So that’s 211 million shares roughly.

Richa Talwar - Deutsche Bank

Okay. Then lastly, I know you said -- you had a slide in here that shows that you're going to be the industry leader. Are you going to surpass GECAS in terms of size? Is this going to the largest aircraft leasing company post-deal?

Aengus Kelly

I think we’ll be on a very similar level.

Operator

We will now take our next question from Ryan Zacharia from Jacobs Asset Management. Please go ahead.

Ryan Zacharia - Jacobs Asset Management

Congratulations on the transaction, guys. The first one is can you guys speak about the opportunity to optimize the liability structure at ILFC, which is currently at around a 6% cost of debt versus 4% for AerCap and how much of that maybe incorporated in the $4 that you guys speak of already?

Aengus Kelly

I’ll just say couple of points and hand it over to Keith. First of all, with the $4 plus we’d assumed no synergies in financing side, that there is no improvement on the funding costs that all of the ILFC debts at the weighted average cost of 6% stays in place. It should be noted however that the high cost of funding that ILFC has on certain branches is a result of having to funded sales in 2009 and 2010 in a very difficult market and that situation does not exist anymore and we are very confident that as we bring new debt on the balance sheet, or indeed if we do exercise some synergies that we’ll be able to bring it in beneath where ILFC’s average cost of debt is today.

Keith Helming

So ILFC is raising a new debt at a much lower cost as Gus mentioned than they had in years ago. So the cost of the new debt on a unsecured basis is much closer to that of AerCap’s run rate debt if you will. But again, we believe it’s important to access funding from both markets. We think the overall cost and blended cost for the combined Company with both sources of capital will be again very, very manageable and again run lowest in the industry.

Ryan Zacharia - Jacobs Asset Management

And you expect that there would be kind of a tailwind, at least on ILFC's side to where that would be coming down over time?

Aengus Kelly

And we see it coming down. It’s a lower level found than it have been in the past.

Ryan Zacharia - Jacobs Asset Management

And just on the tax rate, that 8% or thereabout, you expect that to be phased in at closing?

Keith Helming

The 8% is the tax rate that AerCap experiences today, which is a combination of both the Irish tax rate as well as our position here in the Netherlands. The overall tax rate, as we move most of the assets to Ireland will become closer to the Irish tax rate around 12.5%. So that’s what we are effectively forecasting as the tax rate for the combined company going forward, once all the assets are transferred.

Ryan Zacharia - Jacobs Asset Management

Great. And then just on the trajectory of the ROE as the leverage comes down, can you maybe address that? I would just think that you're going to be building capital using cash to pay down debt and that that might be kind of a drag on the 15% ROE. Can you speak to that?

Aengus Kelly

Yes. As time goes on though we’ll be also building the benefits on the synergy side for both reduction in SG&A type expenses and reduction in tax expense. So that will help counter some of the increased leverage if you will. But we certainly still expect the return on equity to be double digits and if not 15%, closer to 15%.

Ryan Zacharia - Jacobs Asset Management

Great. And then just the last question is on the 2013 to 2018 ILFC deliveries. Can you speak to how many of those have been placed already?

Aengus Kelly

A very substantial portion have been placed and that is in the ILFC queue actually. Most of the product add into 2016 has been placed.

Operator

We will now take our next question from Roger King from CreditSights. Please go ahead.

Roger King - CreditSights

Two questions. On the new market value of the aircraft fleet, it looks like you're going to take about $6 billion write-down to $35 billion combined. Is that correct?

Aengus Kelly

Approximately yes.

Roger King - CreditSights

Okay, and then second of all, on the tax your liability is about $4 billion. Those are going to stay at AIG. Is that the deal?

Aengus Kelly

Yes, the transaction includes what’s referred to as a 338 H10 election, that we agreed with the seller on, the fact that that tax liability will stay with the seller and for our -- the combined company we will have a new tax bases in the assets equal to roughly through the purchase price and we’ll have a effectively clean tax bill going forward and then deferred taxes will build as the profit of the combined company builds.

Roger King - CreditSights

Okay. So it looks like the actual value of the company then as you said was your jewel in the crown is the net present value of this or of the order book?

Aengus Kelly

It’s a lot more than that.

Operator

We will now take our next question from Brian Monteleone from Barclays. Please go ahead.

Brian Monteleone - Barclays

Is ILFC going to remain in SEC registrant down in the south here in the U.S.?

Aengus Kelly

Yes, it will.

Brian Monteleone - Barclays

Both of those?

Aengus Kelly

Yes.

Brian Monteleone - Barclays

Okay, and which entity is going to be doing the acquisition financing?

Aengus Kelly

It’s likely to be at the AerCap level. But again as I mentioned we’re putting a structure in place where there is cross guarantee. So effectively it will be issued from a combined company level, which has the support of both the AerCap business as well as the ILFC business.

Brian Monteleone - Barclays

Understand. And just last question, ILFC has historically talked about their intent to achieve investment grade ratings. Can you maybe talk about, maybe not just where you think ratings are going to be initially on the transaction but also just what aspirations you have on the ratings side?

Aengus Kelly

Well sure. I mean let me say that AerCap was the first and only independent aircraft that’s or to ever be rated investment grade and we got it straight out of the gate. So it is something that we are extremely focused on going forward. We cannot comment on what the rating agency will come out with. That will come out we believe in the next day or so where they view the combined entity. But we believe that the rating of the Company on closing will be one that will ensure that we can access the capital markets on competitive terms.

Brian Monteleone - Barclays

Got it. And then in terms of the kind of 40-60 secured-unsecured split, I know different agencies have talked about 20% and 25% as kind of being a hurdle for AIG. Is that something that's perceived [indiscernible]…

Aengus Kelly

The 40% and 60% is really what the debt balance itself will end up being. We are going to try to manage the secured debt portion of the business at roughly 25% of total assets or less. Of course when the companies are initially combined, it’s slightly above 30%. So we will probably issue less secured in the initial couple of years although we’re still going to access the markets but we will bring that particular statistic down to around 25% level within a couple of years and that is also a measure that the agencies look at as well.

Operator

We will now take our next question, which is a follow up from Jamie Baker from JPMorgan. Please go ahead.

Mark Streeter - JPMorgan

It’s Mark again. Just want to jump in on the last question there on the investment grade rating, because obviously you have several billion dollars of ILFC bonds and I'm very curious to know more information on this. Do you want an investment grade rating because as you've structured this transaction and so forth, you had to figure out the mix of equity and credit and debt and so forth, and where you want your target metrics to be, is it. I know it's your -- do you just think you deserve an investment grade rating or do you want it out of the box? Can you just be a little bit more specific about that?

Aengus Kelly

Well, Jamie, on that front, obviously we’ve worked very closely with the agency. So it would be premature of me to say what they’re going to do, but stepping back from the company as a whole, as I said we were the first company to ever get the investment grade rating that was independent and it’s something that we feel is an asset of the business. But having said that it is not and something that will prevent us from executing a very attractive transaction for our shareholders.

We believe that as we go forward the company will certainly meet the investment grade metrics and it will do so rapidly. In fact the only investment grade metric it doesn’t get straight out of the gate, it does on the cash flows and all other metrics, is the debt-to-equity ratio because the debt-to-equity ratio is a function of the purchase price, which artificially drives it higher.

Mark Streeter - JPMorgan

Okay, great. And then just one last question. On going back to our original question on your view on the attractiveness of secured debt versus unsecured funding; one of the reasons ILFC got in trouble during the crisis and so forth was because of all of that unsecured debt and you've highlighted that, Gus and Pieter, and talked about the efficiency of the secured debt markets for aircraft and that being the lowest cost of debt going forward. So, Pieter, you had just mentioned sort of managing the secured-unsecured mix and so forth. So is there though a real change in terms of your attitude here towards the two markets? Do you still view secured debt as the primary way that you're going to raise capital to fund your business? Or is it permanently altered if you will from your prior philosophy?

Keith Helming

Well, this is Keith. Let me just point out that with this combined company, with the acquisition of ILFC, we are much more comfortable with the unsecured debt market for a couple of reasons. Number one, as I mentioned in my prepared remarks, the ILFC business has done a great job of balancing their operating cash flows with the debt maturities, if you will. So effectively the business runs and can meet its obligations on the debt maturity side, so that all of their new funding is really related to buying brand new equipment effectively and the sources for that, whether it’s secured or whether it’s unsecured, in our view we’ll always be there.

So that’s one particular reason why we’re much more comfortable. And again on top of that, we plan to run a very, very solid liquidity position. As I mentioned this 1.2 times sources to use this for a 12-month period. So in our view if there is a rough period time for whatever reason, we will be able to manage though it effectively.

Operator

We will now take our next question from Justine Fisher from Goldman Sachs. Please go ahead your line is once again open.

Justine Fisher - Goldman Sachs

One quick follow-up from the debt side. So another way to phrase the ratings question; I know you said that you're comfortable that you'll be able to access the capital markets effectively, given the ratings that -- the ratings outcome that might occur. The question is do you think that you could -- do you think that a BB, a low BB or mid BB rating would be -- would still be sufficient to access the capital market? Or do you think it needs to be high BB in order for you to continue to get the funding levels that you are targeting?

Aengus Kelly

Justine, we will see what comes out from the agency in the next day or two.

Justine Fisher - Goldman Sachs

Okay. And then just last quick question on the ILFC 5.65, that's a $1 billion bond that matures in the middle of 2014. Have you guys thought about maybe including that in any -- the refinancing of that in any deal related financing? Or have you not thought about whether or not you might take those bonds out a little bit earlier, just deal with them in June?

Aengus Kelly

We haven’t actually come up with any particular plans yet, but we have a lot of people looking at that, both sets of advisors as well as both businesses. So we plan to do the most optimized debt issuance possible at the time of around the time of closing.

Operator

We will now take our next question from Joe Gill from Goodbody. Please go ahead. Your line is now open.

Joe Gill - Goodbody

Thanks very much and good afternoon and congratulations on the scale of this transaction. I just have a couple of questions on the fleet please. Firstly, in relation to the other category, can you just give us a bit of color as to what's in that and what portion of the value of the combined fleet does that others segment contain? And secondly, the average age of the Boeing 777 components of the fleet? And thirdly, do you believe that the balance between your existing fleet and your order book is optimal, or would you like to see a greater portion of orders in the book going forward?

Aengus Kelly

I will start first with the other category, if you will. The other category does include a lot of the out of the production equipment and I’ll provide with you the statistic that over 100 -- slightly over 100 of the ILFC aircraft will be parted out after their existing lease, but the value of those particular aircraft is less than a $1 billion. So a lot of those particular aircrafts are sitting in this line. Even though it shows a lot of aircrafts from a number point of view, the value associated with those aircrafts is very, very low.

Keith Helming

So I think this is very important point, that less than 3% by value even though it’s 100 plus airplanes is only 3% by value. That gives you an indication of the price we pay for this company. And turning to the order book, we believe that the order book is extremely attractive as I mentioned. The delivery slots is crucial. These are fantastic delivery slots to get them at this point. If you go to the OEMs today, it will be decade later on average before you get this stuff. If you try to order 350s, your average delivery stream will be probably 2023, 2024, same for 787. That results in massive price escalation. These are at a perfect spot in the delivery cycle, right at the front of it, the pricing is exceptionally attractive and it’s the most in demand aircraft in the world. So, we feel very good about that. This order book will fuel future growth, mean that the cash flows and the profits are extremely durable and sustainable. So, we’re very happy with the mix at the moment and then as we go forward, we’ll see what other opportunities may present themselves.

Aengus Kelly

Your question on the 777 on the average age and they’re quite young 777 again by value because the 777 300 the portfolio that ILFC has is quite young and the 777 200 is again as a function of purchase price, they will be at a much lower value. So the average age of the 777s is well inside the average age of the total fleet.

Operator

[Operator Instructions]. As it appears there are no further questions. I’d now like to hand back to our speakers for additional or closing remarks.

Aengus Kelly

Well, thank you all for joining us on this call today. This is a historic day for AerCap and for the industry itself. We believe we’re creating the industry leader here. We look forward to working with all of you over the coming weeks and months and we will see many of you in the next few days in the United States. So, thank you very much. Good bye.

Peter Wortel

Good bye. Thank you.

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