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Fly Leasing Limited (NYSE:FLY)

Q4 2013 Earnings Conference Call

March 6, 2014 09:00 ET

Executives

Matt Dallas - Investor Relations Manager

Colm Barrington - Chief Executive Officer

Gary Dales - Chief Financial Officer

Steve Zissis - President and Chief Executive Officer, BBAM

Analysts

Jason Arnold - RBC Capital Markets

Richa Talwar - Deutsche Bank

Gary Liebowitz - Wells Fargo Securities

Bill Mastoris - Gleacher & Co

Glenn Engel – Bank of America Merrill Lynch

Operator

Hello, and welcome to today’s Fly Leasing Limited Fourth Quarter and Full Year 2013 Earnings Call. My name is Todd and I will be your web event specialist for today. (Operator Instructions)

It is now my pleasure to turn the webcast over to Matt Dallas. Mr. Dallas, the floor is yours.

Matt Dallas - Investor Relations Manager

Thank you. Good afternoon everyone. I am Matt Dallas, the Investor Relations Manager at FLY Leasing. And I would like to welcome everyone to our fourth quarter and full year 2013 earnings conference call.

FLY Leasing, which we will refer to as FLY, or the company throughout this call, issued its fourth quarter earnings results press release earlier today, which is posted on the company’s website at www.flyleasing.com. We have a slide presentation that accompanies today’s call, which is available to participants on the webcast live. If you are not accessing the webcast, you can find a copy of today’s presentation in the Investor Relations section of our website on the Presentations page. If you are listening to both the live call and the webcast, you may want to mute your computer as there will be a slight delay in the webcast audio.

Representing the company today on this call 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 today 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 the current expectation 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 expressed written consent of the company. A replay of this 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.

Now, I’d like to hand the call over to Steve Zissis, the President and CEO of BBAM. Steve?

Steve Zissis - President and Chief Executive Officer, BBAM

Thank you, Matt. Good morning, everyone and thanks for joining us today. We have made tremendous progress at FLY in 2013. With strong tailwinds at our backs from ever improving industry conditions, we were able to execute with an almost 100% success rate against our objectives for the year. 2013 really marked the beginning of a transformation of our business. As we steadily grew top line revenues and laid the basis for further growth of both earnings and cash flow in 2014 and beyond.

Colm will take you through the company’s accomplishments in detail later on on the call, but let me start with a few highlights. First, we grew the business in line with our expectations at the beginning of 2013, having added 14 aircraft for total acquisitions of $642 million. These aircraft were on average two years old and featured long, contracted remaining lease terms of 8.5 years.

As we look forward in the current calendar year, we are confident in our ability to meet or exceed similar levels of growth. In addition to the two aircraft acquisitions that we have already announced in 2014, we have also identified another 10 aircraft for acquisition in 2014 for total acquisitions of approximately $400 million. Given our stated fleet growth objectives of 15% per annum, we are now in a position to be very selective as we look at new deals in the quarters ahead. To the extent that we find good deals that offer particularly attractive risk return relationships, we should be able to exceed our growth targets for the year, but we will be patient and deploy capital carefully in these ever changing market conditions. 2013 was also a landmark year in the context of liability management. We have repriced, upsized and extended the company’s term loan, increased the availability in the warehouse facility, restructured and extended the BOS debt, issued the company’s inaugural senior unsecured bond and raised over $170 million of new equity capital. Again, Colm will cover these activities in more detail.

Now, I would like to talk a little about the current market conditions in our industry and touch on a few key trends that we are watching closely. First a few comments on the used aircraft market. Given that FLY will continue to focus its growth on the most liquid in demand narrow body aircraft with large installed user bases. This is the part of the market that we watch most closely. We witnessed significant improvements in lease rates for used narrow bodies in 2013. Much of the available supply of used Airbus and Boeing narrow bodies was absorbed by airlines around the world in 2013.

Airlines behave rationally slowly, but steadily absorbing used aircraft throughout the year in line with increasing passenger traffic demand and disciplined capacity growth in most of the regions. The combination of less supply and steadily increasing demand throughout the year translated into a steady upward climb in lease rates. These gains in lease rates in 2013 have moderated in 2014, while the improvements appear to be consolidating around the higher lease rates. Although lease rate improvements are welcome news, we are somewhat concerned with the emerging market dislocation caused by falling local currencies and the potential for slower growth in these regions. Both of these emerging market trends are headwinds for our business, because a good portion of the industry’s demand in the last decade has been fueled by the fast growing airlines in these regions.

Falling currencies and slower growth will force many newly established low cost carriers and domestic airlines in emerging market countries to rationalize their fleets, postpone deliveries and reduce their growth plans. We believe that many of these airlines will launch capital raising efforts that result in new asset origination opportunities primarily in the former sale lease backs for those lessors with well established global footprints like FLY and BBAM. Obviously, this is a developing situation and one we will watch closely.

We ended 2013 with 98% fleet utilization, an obviously improvement from earlier in the year. We started 2013 with 29 remarketing events and all these aircrafts are now placed. We expect to have 100% utilization by the end of March. As for 2014, we started the year with 21 scheduled redeliveries and have remarketed, extended or sold all but five of these aircraft. These five aircraft will come off lease in the second half of 2014. The lack of available aircraft in our fleet in 2014 plus the fact that 12% of our 2015 and a third of our 2016 aircraft have been committed for support – have been committed and support the improving metrics in our business.

One of the more interesting fundamental trends impacting our business is the number of new entrants who are bringing large amounts of capital into the sector. Well, it is the case that there had been some consolidation among the more established and diversified aircraft lessors, most notably with the recently announced merger of AerCap and ILFC. The more notable development in our opinion is the number of new entrants.

These new entrants fall into two categories. First, there are a number of what we characterize as passive lessors, who have focused investment mandates to originate aircraft investments from the more well established lessor community. These new players typically focus on single part of the market with single investment focus on either brand new aircraft, mid-life aircraft, wide body aircraft traders, end of life or part of aircraft. Most don’t have a global footprint from which to originate aircraft directly from the airline community and are searching for yield and investment in hard assets. The capital backing these players comes in a variety of forms. But with strong representation from BDCs, managed funds and asset managers with experience in other asset classes. And it’s facilitated by easy access to capital markets and generally favorable financing conditions.

Second, there is a growing amount of interest in asset classes from large Asian based capital sources. In this case the focus is almost exclusively on new or nearly new aircraft. We believe that these two trends reflect a growing recognition that commercial aircraft and in particular aircraft leasing business is an emerging and bonafide asset class in and of itself. The trend is not unlike that which develops over 10 years or 15 years ago in other asset classes like infrastructure. We believe that the overall, this is a positive development for the sector that is likely to insulate what has historically been a cyclical business from volatile aircraft pricing. As this trend continues and we do expect this to last many years absent a major unforeseen market event, we will see the traditional lessors benefit from increased liquidity as they trade assets and rebalance their portfolios to take advantage of opportunities not available to the broader investor community. All of this in our opinion is good for the industry as it enters a new age of acceptance.

On the buy side, it is getting more challenging to find deals that meet our internal return targets given these shifting industry conditions. But we are – beginning 2014 we are seeing far more sale lease back opportunities than were available in 2013. In addition to the increased pace of sale lease back activities, there are very large numbers of aircraft available from other lessors. The landscape is filled with potential aircraft sellers as lessors rebalanced their portfolios, lessors with let’s say concentration issues lighten up on exposure to certain names to make room for new deals. Passive investors harvest the tax positions and sell side investors exit the business to meet partnership goals. More aircraft assets are being offered available for sale today than any time in the history of the business. This trend will continue given the most lessors have adopted asset disposition policies to demonstrate to their stakeholders their ability to trade, realize profits, improve liquidity in the assets as they have build out their portfolios. Again, this is a healthy trend that should further boost confidence in the sector.

I will now turn the call over to Colm.

Colm Barrington - Chief Executive Officer

Thank you, Steve and good morning ladies and gentlemen. As Steve has already outlined the last year was not a positive one for FLY. In particular in relation to the management of our fleet, our portfolio growth and our increased liquidity and financing all of which contributed to an increase in our net income and cash flow during the year. Despite a substantial increase in our share count in the second half of the year following our secondary share offering, FLY’s EPS for the year was $1.50. A positive earnings and cash flow in 2013 allowed us to increase our dividend. On February 20, we paid a dividend of $0.25 per share in respect to quarter four 2013. FLY continues to pay the highest per share dividend of any listed aircraft leasing company.

As we look forward into 2014 we have confidence in our ability to meet net fleet growth of 15%. In broad terms and making some assumptions about aircraft sales during the year, this means spending at about $600 million on aircraft acquisitions, which again in broad terms implies the acquisition of about 15 new and relatively new popular narrow body aircraft. The actual number and type of aircraft purchased may turn out to be somewhat different, but we have the resources to meet our targeted expenditure figure and we will target new and relatively new aircraft thus continue to reduce our average fleet age and lengthen our average lease term.

During 2013, our leasing business performed well. Our fleet utilization increased to 96% in the year, but 98% being achieved in quarter four. We expect to have a fleet utilization of about 99% in quarter one 2014. And as Steve has said we will have 100% of our fleet un-leased by quarter end. This higher aircraft utilization will have a continuing positive impact on our lease rental revenues and our net income offsetting some of the lower rental rates that we have experienced in the last few years. We originally had 21 leases expiring in 2014. As Steve has said we have now placed 16 of these aircraft to a combination of lease extensions, new leases and sales to third parties. All of the remaining remarketing is scheduled for second half of the year. We are confident that we will deal with these remaining aircraft prior to their leases expiring.

In 2013, FLY purchased 14 aircraft at a total cost of $642 million. Of these aircraft, eight were manufactured in 2013 and were purchased by FLY as brand new or very nearly new aircraft. The aircraft were acquired mainly through sale lease back transactions but with some being purchased from other aircraft investors. The 14 aircraft are leased to 10 airlines in eight – Asian, European and North and South American countries. As a result FLY lessee and jurisdictional diversity has brokened yet again.

FLY has also continued its successful program at aircraft sales. In 2013, we sold a total of 10 aircraft with an average age of 13.6 years and for a total gain of $6.3 million above our net book value at the time of sale. Since 2008, FLY has sold total of 22 aircraft with an average age of 12.5 years and for an aggregate gain of $48.6 million or 14% above our net book value of these aircraft.

We continue to pursue opportunities to sell older aircraft in order to maintain a younger fleet of the most popular aircraft types. In this regard, it is useful to note that there continues to be a broad range of buyers for older aircraft, either to lease to smaller air carriers or for breakdown for spare parts. And as importantly, there continues to be debt financing available for such buyers. FLY will continue to pursue aircraft sale opportunities in 2014. To-date we have identified real possibilities for the sale of four aircraft. These sales when completed will have an additional positive impact on our average fleet age and on our average lease term. The sales will also contribute positively to 2014 net income.

This ongoing management of our fleet as had a significantly positive impact on FLY’s portfolio of aircraft and leases. At the end of 2013, FLY’s average fleet age weighted by net book value had reduced to 8.6 years from 9.4 years a year earlier. And our average remaining lease term had increased by over one year from 3.2 years to 4.3 years. Meanwhile our contracted annualized lease rentals grew by 14% during the year to a total of $371 million in 2013. Our lessee diversity has also increased with the aggregate rents from our top 10 lessees reducing from 44% total rents to less than 41% total rents during the year.

FLY also had a very active year in the capital markets raising a total of $1.1 billion of debt financing and $173 million of new equity. Our particular interest was our first venture into the unsecured debt markets where we raised $300 million of senior unsecured notes due in December 2020. We were particularly pleased with how well this first issue was received and expect that the unsecured debt markets will continue to be a source of funding for FLY in the future and as a reducing cost as FLY becomes better known and as we increase the number of unencumbered assets in our portfolio.

FLY was also active in the secured financing markets and during the year where we raised over $600 million of secured debts. In addition to increasing the amount of debt available, we were also successful in extending the term of several of our facilities. And FLY now has no significant debt maturities until 2018 and beyond. During 2013, we also made a decision to return to the equity markets and completed $173 million follow on equity issue last July. This new equity has given us the resources to achieve the fleet growth that I have outlined above and the liquidity that allows us to proceed with our growth plans in 2014 and beyond. The increased size and scale of our portfolio which was facilitated by the equity issue has resulted in an increased cash flow which has allowed FLY to increase its dividend. FLY now pays $0.25 per share per quarter. Since we launched, FLY has paid 25 consecutive quarterly dividends for a total of $6.37 per share. This consistent and increasing dividend increased by 14% in quarter one of this year has enhanced shareholder value. FLY and its management team continue to be dedicated on maximizing shareholder value.

I’d now like to give you a brief look at our 2014 aircraft acquisition pipeline. To-date in 2014, FLY has acquired 2 more aircraft and has identified a further 10 in our pipeline with a total cost of approximately $400 million. Of these 12 aircrafts, 9 are Boeing 737-800s. The average age of the 12 aircraft is 3.5 years and the average term of the attached leases is 8.7 years. The annualized lease rate factor of about 12% for this pipeline is at a level that will have an incremental positive impact on FLY’s future EPS.

FLY has the financial capacity to acquire additional aircraft beyond the identified pipeline. Today, we have over $400 million of unrestricted cash, over $300 million of capacity in our acquisitions facility and significant additional identified capacity from our current banking group. All-in-all, FLY has the ability to acquire well over $1 billion of aircraft from currently available and identified sources and without the need to return to the capital markets.

Thank you for your attention. And I will now hand over to Gary Dales to take you through the quarter four and full year 2013 financial statements.

Gary Dales - Chief Financial Officer

Thank you, Colm. We are reporting net income for the quarter of $13.4 million, or $0.32 per share. This compares with net income of $31 million and $1.17 per diluted share for the same period in 2012. Recall that in the prior year, FLY sold its 15% interest in BBAM recognizing a gain of $36.9 million. The results for the fourth quarter of 2013 including net gain on the extinguishment of debt of $18.6 million and an impairment charge of $8.8 million. For the year ended December 31, 2013, our net income was $52.5 million or $1.50 per share as compared to net income of $47.7 million or $1.80 for the same period in 2012.

Now, let me discuss these results in a little more detail. As reflected on the slide, total revenues were $85.5 million in the fourth quarter of 2013 and consist primarily of operating lease revenue. Excluding end of lease revenue, operating lease revenue increased approximately 11% compared with the fourth quarter of 2013 – compared to the fourth quarter of 2012. The increase is primarily due to the additional aircraft in the portfolio and an improvement in the utilization factor.

Total revenues for the year ended December 31, 2013 were $369.5 million compared to $432.7 million in 2012. The decline is primarily attributable to the 2012 gain on the sale of our investment in BBAM. Excluding end of lease revenue, operating lease revenue declined $14.8 million in 2013. The decrease was caused by the lack of revenue from aircraft that were sold in late 2012 and early 2013 and lower lease rates on aircraft that were extended and remarketed during 2012 and 2013. These decreases were partially offset by revenue generated by aircraft acquired in 2013. End of lease revenue was lumpy and difficult to predict. At this time, we expect end of lease revenue to be between $2 million and $4 million for the first quarter of 2014. Total operating lease revenues are expected to range between $85 million and $89 million, an increase from the fourth quarter of 2013.

Total expenses for the fourth quarter of 2013 were $73 million. This compares to $101 million for the same period in the previous year. The decline in the expenses is primarily due to the net gain associated with the restructuring of one of our credit facilities. During the fourth quarter of 2013 and 2012, we incurred impairment charges. In both cases, these are transactional impairment charges relating to aircraft that would be sold in the following year. Similar to last year, we expect to recover a substantial portion of the $8.8 million charge in end of lease income when the aircraft is sold later this year.

Excluding the transactional impairment charges and gains and losses on the extinguishment of debt, our operating expenses increased $765,000 in the fourth quarter of 2013 compared to the same period in the previous year. For the year ended December 31, 2013, our total expenses were $311.4 million compared to $381.2 million for 2012, a decline of $69.8 million. $32.3 million of the decline relates to the 2012 swap termination charge. Excluding the unusual charges, operating expenses declined $11.4 million in 2013 compared to 2012. At December 31, 2013, our assets totaled $3.7 billion, of which $3 billion is invested in flight equipment held for operating lease. Our total cash balance is $579.3 million, of which $404.5 million is unrestricted. This compares to total cash of $300.6 million at December 31, 2012, of which $163.1 million was unrestricted.

Now, let me turn to our capital structure. In addition to the $173 million equity raise, we completed last July, we have been busy in the capital markets refinancing several of our debt facilities and raising debt in markets that are now new to us. We have reduced our weighted average contracted interest rate from 5.1% at the end of 2011 to 4.6% at the end of 2013. In addition to these cash interest charges, we have non-cash interest charges consisting of the amortization of loan issue costs, amortization of original issue discounts, and fair market value discounts associated with the debt we acquired in our GAAM acquisition. During 2013, these non-cash interest charges totaled $22 million. The decline in our cash interest cost and a reduction in the non-cash amortization have allowed us to reduce our book interest expense by $22.1 million despite an increase in the total amount of debt outstanding.

During 2013, we have also reduced our net leverage, which we define as the ratio of net debt to shareholders’ equity. We measure net debt as the book value of total borrowings, less unrestricted cash and cash equivalents. Our net leverage ratio was 2.9 times at December 31, 2013 down from 3.6 times at the end of 2012. Over the long-term, we aim to be in the 3 to 4 times range depending on market conditions.

Finally, let me cover a few items of guidance for the first quarter of 2014. As previously mentioned, we are expecting operating lease revenue to be between $85 million and $89 million. We also expect $2 million to $4 million of end of lease income. We expect book interest expense of between $33 million and $36 million. And lastly, maintenance and other expenses should run $2 million to $3 million. Please note that the previously anticipated gain on the extinguishment of debt of $3 million to $4 million, which was previously anticipated for the first quarter, is now expected to occur in the second quarter of 2014.

Thank you. And with that, let me turn it back to Colm for some closing remarks.

Colm Barrington - Chief Executive Officer

Thank you, Gary. Well, following a good year in 2013, FLY is well-positioned for further positive results in 2014. During the last year, we are focused on rejuvenating our fleet and improving our capital structure. And meanwhile, we have identified a group of attractive aircraft for purchase in 2014, which will add further to FLY’s shareholder value.

With that, we are now ready to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from the line of Jason Arnold.

Jason Arnold - RBC Capital Markets

Hi, good morning guys. Just curious if you could comment on the aircraft types and the five remaining lease expirations for 2014 and your thoughts on whether those will be sold or released.

Colm Barrington

All of those will be released and there are two A319s and three 737-800s.

Jason Arnold - RBC Capital Markets

Okay. And then I guess just one other one, you commented on opportunistic aircraft acquisition potential fallout from the emerging market into the equation. And I guess I’d just be curious to hear your thoughts on what types of aircraft are kind of most attractive to you here from a lease rate perspective. And then regionally, where you are kind of seeing the most demand and opportunity.

Colm Barrington

Yeah, typically those opportunities will be on the new side of the narrow bodies so, A320s and 737-800s. And for the most part, we are seeing opportunities in Asia right now, but I wouldn’t be surprised if we see some of this popping up in other parts of the world.

Jason Arnold - RBC Capital Markets

Okay, great. Thank you.

Operator

Your next question is from the line of Richa Talwar.

Richa Talwar - Deutsche Bank

Hi, guys. Just a couple of questions for me. So, first, regarding the 2002 vintage 737-700s you recently purchased, can you talk about the rationale for that decision? We’ve been hearing consistently that there is strong demand for the 737-800, which you also just bought, but wanted to know if you’re seeing the same strength in demand for the 700.

Colm Barrington

On the 700 side, we don’t see a strong demand for that aircraft although I have to say that it is starting to perk up a bit with some well-established airline so, looking for some older aircraft right now. But the rationale for us acquiring that is we thought it was properly priced and there was a good opportunity to trade that aircraft.

Steve Zissis

It was part of a portfolio of group of aircraft we bought from the same vendor. So, we mixed up some 800s with the 700.

Richa Talwar - Deutsche Bank

Got it. Okay. And then, on China – this news that China is moving to promote more low cost carriers. It seems like there may be more opportunity for you to do business there if that occurs. First, would you agree with that and then second, do you have relationships with some of the current low cost carriers in the nation, I think there is Spring Airlines or West Air. Do you have relationships there already?

Colm Barrington

We currently do not have any aircraft lease to those entities, but we’re in active discussions with them and the other low cost carriers coming up in China and we do see opportunities there.

Richa Talwar - Deutsche Bank

Okay, great. And then last one is – it seemed like a pretty normal quarter as it relates to extraordinary factors or lumpy items like end-of-lease revenue having an impact on your results. So, I was just curious if you would think that the EPS that was achieved in the quarter was like a good run rate to assume going forward. I would think the answer is no. Colm, you talked about the favorable rental yields you are getting on the new aircraft you are adding. So, just when you incorporate all the expenses associated with those assets, do you think that there is more opportunity to really – any assets you added towards the back half of the year and you are planning to add. Do you think there is a lot of opportunity to really improve profitability and quarterly EPS on a go forward basis?

Colm Barrington

Yeah, I think the fourth quarter, Richa, didn’t include any end-of-lease income and didn’t include any aircraft sales. From that point of view, it was somewhat lower than one would expect. I think in the first two quarters as we suggest in our guidance there will be some end-of-lease income and I think we’ve also mentioned few aircraft sales that we’ve targeted. So, I think going forward you perhaps will see further positive impacts from those two sectors in particular. Also, several of the aircraft we bought in 2013 only came into the portfolio towards the end of the year. So, I think you will see an increasing impact of the earnings from those aircraft as we go forward also.

Richa Talwar - Deutsche Bank

Okay, thank you.

Operator

Your next question is from the line of Gary Liebowitz.

Gary Liebowitz - Wells Fargo Securities

Thanks, operator. Steve, you had mentioned that it’s becoming more difficult to find deals that satisfy your return requirements. If that trend continues throughout 2014, could we see beyond the $400 million purchase commitments that you’ve already identified? Could we see a real slowdown in the acquisition activity and could FLY even become a net seller of aircraft under those market conditions?

Steve Zissis

Well, look, Gary, the market is big enough where we always think we can find opportunities and we have indicated acquisition target of between 10% and 15%. We think there are plenty of opportunities still that or even double it. So, on the whole I don’t think we are that concerned. If you needed to buy $4 billion or $5 billion worth of stuff then you might start having a bit of concern.

Gary Liebowitz - Wells Fargo Securities

Okay. And also maybe one for Gary, I feel like I have asked this before, but if I look at your first quarter guidance, the lease – rental revenue $85 million to $89 million, but you have ended 2013 with an implied quarterly run rate of something closer to $93 million and I am sure you have some – maybe you have some expansions at lower rates, but you have also already closed two acquisitions, why is the guidance so much lower than what’s implied by the annual run rate?

Gary Dales

The annual run rate that we disclosed of $371 million is the contracted rates and you need to factor in for the book numbers the amortization of any lease premiums and discounts and we have things like lease incentives. So there generally is a slight decline in the actual revenues compared to the contracted run rate. And I think the guidance we gave you should be a good indication of where we think we are going to be in the first quarter.

Gary Liebowitz - Wells Fargo Securities

Okay, thank you very much.

Colm Barrington

Thanks Gary.

Operator

(Operator Instructions) Your next question is from Bill Mastoris.

Bill Mastoris - Gleacher & Co

Thank you. Some of your larger competitors have moved towards creating a debt structure that’s largely unsecured or at least a larger percent of that debt structure is unsecured and you hinted that that is something that you are contemplating now, I am just wondering is there a target that you might have in mind. And then kind of a logical follow-up to that would be is there also a target level of let’s say unencumbered assets where you would like to be maybe at year end 2014, or let’s say the year end 2015, so should the capital markets change at least you can entertain some of the secured financing options that are available in more difficult markets?

Colm Barrington

Sure. Yes, thanks Bill. Yes, I think we have stated that our general plan is to move towards 25% to 30% of our total at debt financing from the unsecured markets viewed from where we are today. So I think you probably see us edging towards that over the next. And I think – and it’s probably best to look at it as you mentioned yourself on the 24 month basis rather than 12 month basis because this is sort of an ongoing trend. And as we raised more unsecured debt, we will obviously then have more unencumbered assets in the portfolio. I think we have already stated we have unencumbered two aircraft to-date, so we have about $75 million of unencumbered aircraft today. So you will see us working up towards that 25% to 30% of our assets unencumbered as we achieve our targeted unsecured debt of that level.

Bill Mastoris - Gleacher & Co

Okay and are there any plans to access the capital markets immediately to take advantage of what are just historically tight spreads and low rates, maybe to go ahead and secure that ahead of what could be a possible back up in rates or to protect yourself maybe against the capital markets maybe reversing their current conditions?

Colm Barrington

Much of our debt is floating rate Bill already and we hedge that with the interest rate swaps. So we have taken advantage of the lower rates that’s prevailed over the last year. However, we are very well capitalized right now. So we don’t to be going out into the market raising more capital until we have identified uses for. So I don’t see us going into the capital markets probably in the next six months anyway maybe during the course of the summer or in the second half of 2014, we might go back in again. But as of now we have plenty of capital to achieve our growth targets. So that’s where we sit today.

Bill Mastoris - Gleacher & Co

Okay. I was thinking more of a replacement than actually adding new capital, but thank you very much. I appreciate the color.

Operator

Your next question is from the line of Glenn Engel.

Glenn Engel - Bank of America Merrill Lynch

Good morning. I didn’t see any cash flow items. Can you give us the operating cash flow for 2013, capital spending for 2013 and also what debt retirements look like for 2014?

Colm Barrington

We are putting out some papers on that Glenn. Do you have another question while Gary just gets you the exact information?

Glenn Engel - Bank of America Merrill Lynch

I guess also tied to that would be just how much dollars worth of aircraft you sold last year, and whether you expect a comparable amount in 2014?

Colm Barrington

Yes, I think the total sales, was just over $100 million because as we said they were a 10, 13.5 year old aircraft. So I think the sold – total sales proceeds are something over $100 million.

Gary Dales

Yes, I think it was about $50 million because one of those sales was through the sale of a company, so that was kind of net proceeds.

Colm Barrington

Yes, the value of the aircraft sold.

Gary Dales

And our operating – cash flow prior to operating activities is $178 million and investing net is $609 million and then you wanted to know what the financing...

Glenn Engel - Bank of America Merrill Lynch

For next year the debt coming to?

Gary Dales

Our – let’s see – I have that as well. I don’t have that on top of my…

Colm Barrington

I mean I think, while Gary is pulling out that figure, Glenn I think it is important to remember we have no material debt maturities until 2018 and beyond though all of our debt repayments are just as cash flow comes in two of our facilities.

Glenn Engel - Bank of America Merrill Lynch

And with final question – okay, go ahead.

Gary Dales

I want to just say all of this will be out early next week in our 20-F and you will be able to get all of the details. But we estimate that there – we will repay approximately $235 million of debt and that’s just through regular amortization in 2014.

Glenn Engel - Bank of America Merrill Lynch

If I look at to Page 6, the 213 aircraft acquisitions you have purchase $642 million worth of planes it says and you expect $72 million worth of rents, that’s only 11% margin that seems on the lower end?

Colm Barrington

Well, that’s close to 1% per month lease rate factor again which is about where the market is today.

Gary Dales

And those were all – eight of them were brand new aircraft. So we generally have a little lower lease rate on that.

Colm Barrington

Yes, if you had a bunch of older aircraft in that, you would have had a higher lease rate factor, but for new aircraft that’s about market right now.

Glenn Engel - Bank of America Merrill Lynch

And the aircraft you are buying in 2014 and they would be slightly better I see because there is slightly...?

Colm Barrington

Pipeline we have identified is 3.5 year old aircraft versus the 2 year old average to re-compliance here so.

Glenn Engel - Bank of America Merrill Lynch

12 instead of 11?

Colm Barrington

For the lease rate, it’s a little bit – lease rate factor is a little higher, yes.

Glenn Engel - Bank of America Merrill Lynch

Okay, thank you.

Colm Barrington

Thanks Glenn.

Operator

There are no further questions at this time. Do you have any closing remarks?

Matt Dallas - Investor Relations Manager

We would like to thank everyone for joining us. We look forward to updating you again next quarter.

Colm Barrington - Chief Executive Officer

Bye for now.

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