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Fly Leasing Limited (NYSE:FLY)

Q2 2011 Earnings Call

August 4, 2011, 9:00 a.m. ET

Executives

Matt Dallas – IR

Colm Barrington – CEO

Steve Zissis – President and CEO of BBAM

Gary Dales – CFO

Analysts

Sameer Gokhal– KBW

Helane Becker – Dahlman Rose

Joe Gill - Bloxham

John Evans – Edmunds White Partners

Rich Fitzgerald – Jefferies Investments

William Mansfield – Barclay Asset

Richard Haydon – Gild Capital

Operator

Good morning. My name is Heather, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fly Leasing second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions)

Thank you. Mr. Matt Dallas, you may begin your conference.

Matt Dallas

Thank you, and good morning, everyone. I am Matt Dallas, the Investor Relations Manager of Fly Leasing and I'd like to welcome everyone to our second quarter earnings conference call. Fly Leasing, which we will refer to as FLY or the Company throughout this call, issued its second quarter earnings results press release earlier today, which is posted on the Company's website at flyleasing.com.

On this call today, we will also discuss the recently-announced acquisition of a portfolio of 49 aircraft. A slide presentation accompanies today’s call, and is available on our webcast. You can also find a link to the webcast, and a copy of the presentation, in the events page – on the events page in the Investor section of our website.

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 by reading the following Safe Harbor statement. This conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to statements regarding the outlook for the Company's future business and financial performance.

Forward-looking statements are based on current expectations and assumptions of FLY's management, which are subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to factors that are summarized in the earnings press release and are described more fully in the Company's filings with the SEC. Please refer to these sources for additional information. FLY expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views or expectations, or otherwise.

This call is the property of FLY and cannot be distributed or broadcast in any form without the expressed written consent of the Company. A replay of this call is available for two weeks from today. An archived webcast of this call will be available for one year on the Company's Web site.

I would now like hand the call over to Colm Barrington, the CEO of FLY Leasing.

Steve Zissis

Thank you, Matt, good morning everyone, and thank you all for joining us. We are delighted today to talk to you today about FLYs agreement to acquire 49 leased aircraft that are currently managed by Global Aviation Asset Management, and Australian company.

First we will have a short slide presentation explaining this transaction and it’s rationale, then we turn to FLY’s second quarter earnings release, and finally we will wrap with the Q&A session.

We’ve entered into a [inaudible] agreement to acquire 49 modern and fuel-efficient aircraft in the transaction value is approximately $1.4 billion. 40 of the 49 aircraft are Boeing 737 Next Generation, and Airbus A-320 family aircraft.

This transaction will be accreative to GAAP earnings and will generated positive free cash after-debt service. The company don’t have raise any new equity. The transactions will have a particularly positive impact on our EPS.

The aircraft in the new portfolio are leased 23 airlines in 15 countries, and the lessees include many well-known airlines, including Air France, British Airways, Finnair, Hanan Airline, Iberia, Qantas, Ryanair, South African Airways, and Virgin Atlantic.

As a result, the credit profile of the portfolio is particularly strong. The acquisition has 19 new high-quality credits, to fly lessee based. All air – 49 aircraft are on lease today.

The portfolio comes with approximately $1.24 billion of secured non-recourse debt from five lenders. Much of this debt was put in place prior to the credit crisis, and as a result, is on relatively attractive terms. The weighted average interest rate of the debt is approximately 6%.

Notwithstanding the relatively high leverage, it is important to note that upon closing, there’ll be no material near-term debt maturities that will need to be refinanced. The recent financing package in place on the portfolio, is relatively long term and it’s major.

Approximately $145 million of the 1.4 billion purchase price, including transaction expenses, will come from FLY’s unrestricted cash. As a result, we do not have to raise any new equity or debt to complete this transaction or to meet near-term lease financing obligation.

We’re aiming to close the transaction in the fourth quarter, after a fleet of lend consents, and other customary closing requirements.

I would now like to describe the rationale behind the transaction, and explain how its completion demonstrates some of FLYs strength. As you can see, we are really excited about it. First the acquisition of this portfolio fulfilled FLYs stated goals of growing it’s fleet strategically. Over the last few years, we’ve deployed capital towards debt and share repurchases, and completed several such transactions that have added significantly to shareholder value.

Meanwhile, our unrestricted cash balance has grown to a level which allows FLY to pursue significant growth opportunity at the beginning stages of an exciting upswing in the aircraft cycle. This transaction, which provides the assumption of attractive non-recourse debt and which can be fully funded from internal cash. Meaningfully, grows FLYs revenues, earnings, and customer base.

While this is the first major outcome of this strategy, it is not the last. And we continue to pursue additional one-off and portfolio acquisitions.

As you can see, this transaction is a transformational event for FLY. On completion, our contracted rentals was increased by 80% to $370 million per year. The total number of aircraft in our portfolio will grow by 82% to 109 aircraft, and we’re adding 19 new Lessees to our portfolio for a total of 53 airline customers, a 56% increase.

The new portfolio also adds to compliment FLY’s existing fleet. The portfolio consist of mainly narrow body, in-demands and fuel efficient aircraft. We will be adding 23 Airbus A320 Family, and 17 Boeing Next – 737 Next Generation aircraft to the FLY portfolio, bringing our total of these types to 85, out of a total of 109 aircraft. This makes FLYs portfolio one of the most attractive in the industry.

We also acquired six Boeing 717s on long-term leases Qantas, and 3 Airbus 834 wide body and leased to Air France and Virgin Atlantic.

In our evaluation of the portfolio, we’ve used relative conservative residual value assumptions towards these aircrafts, which when combined with contracted rentals for these three strong lessees, makes us comfortable to the acquisition of these nine aircraft, is attractive as part of a portfolio.

Another compelling aspect of this transaction is the diversification and strength the new portfolio adds to FLY’s existing credits. Out of the 23 lessees in the new portfolio, only four overlap with FLY’s current lessees. As you can see from the chart, the portfolios we acquired meaningfully improved lessee and regional concentrations. With our five largest lessees totally less than 26% of our total rents after the transaction as compared to 34% before the transaction.

I would now like to hand the discussion over to BBAMs CEO and President Steve Zissis.

Steve Zissis

Thank you very much Colm, and good morning everyone. I’d like to take a few moments to reiterate a couple of points made by Colm, just now and to give you my perspective on the company’s strategy going forward.

It is my hope that those who have followed FLY have [inaudible] in 2007, have observed that above all else, the FLY management team has driven to be the best stewards of capital that we possibly can be for the FLY shareholders.

Appropriate capital allocation throughout the aviation cycle is a key to long term success, aircraft leasing enterprises. Our actions, whether through the aggressive accumulation of the company’s stocks and buyback, five full debt repurchases, aircraft acquisitions, and aircraft sales have been driven first and foremost by our motivation as major shareholders in this business.

The success of this company matters to each and every one of us.

I firmly believe that today’s announcement is another perfect example of our willingness to be patient, creative, hardworking to achieve the appropriate outcome for our shareholders. While it’s true that we have been tempted to acquire aircraft more steadily and won off acquisitions, we decided to limit this activity in the short term so that we will position from a capital perspective, to pursue one or two portfolios that were available in the market.

It was and is our belief that a privately negotiated transaction outside of competitive bidding process, would drive volume for our shareholders. We believe the transaction announced today, does just that.

I’d also like to say that we continue to be focus on strategic growth and are working hard to deliver on this objective. We continue to evaluate other opportunities, and I hope to be talking more about these activities in the future.

Our shareholders should also expect more aircraft trading and we continue to enjoy improving market conditions. By aircraft trading, I mean that we will be actively looking to modify owned aircraft when we feel the prices make sense for the company, and we will continue to pursue one-off acquisition activities alongside this.

This isn’t to say that we won’t continue to look for good value, relative value on other portfolio transactions.

As always, we will remain nimble and we’ll focus on growing the per-share value of this business. BBAM is proud of the role it has played in [inaudible] and negotiating this transformational transaction for FLY. This acquisition arose from a longstanding dialog between BBAM and the [inaudible] shareholders. Our entire platform including the technical team, the aircraft marketers and house legal, accounting and the capital markets group, all work together to evaluate and negotiate this transaction for FLY.

BBAM team has worked tiredlessly to deliver this deal to FLY shareholders in the most efficient way possible.

BBAM will continue to service and manage FLYs 109 aircraft portfolio going forward. As the world’s third largest aircraft leased manager, after [inaudible], BBAM will now manage a portfolio of over 450 aircraft by it’s full service aircraft leasing platform. The highlight effect, while Colm has noted the 19 lessees are new to FLY, only two are new to BBAM.

We have over 100 employees across ten offices worldwide and relationships with airlines, manufacturers, lessors, and banks globally. FLY benefits from the scale of BBAMs operstion, a platform which a 109 aircraft portfolio could not support on its own.

We believe now is the right time in the aviation cycle to purchase aircraft. There is no doubt that aircraft values are cyclical and current aircraft values remain well below peak levels. We believe we’re now participating in a cyclical recovery.

Recent significant orders for new aircraft from airlines in both Asia and North America reinforce the increasing strength of the aircraft leasing industry and give us confidence that we are in upturn.

Finally, both Colm and I have said that we believe this transaction is going to drive value for our shareholders. Over to Colm.

Colm Barrington

Thanks Steve. Looking now at slide number 9, we must complete several key steps in order to close transaction. Most importantly we will need to obtain lender consent, which we’re working on over the next two months.

We’re aimed to close the transaction early in the fourth quarter, and within 75 days of closing, we’ll file historical pro forma financial statements with the SEC.

Moving to slide ten. I’d like to summarize the five strategies in the future. As Steve said, we’ll continue to pursue smart growth the ways we have already executed upon this year.

First of all, we will pursue more sale and lease back opportunities with airlines, and the recent major aircraft orders from both Asia and North America airlines lead us to believe that there will continue to be significant opportunities in this area.

Second we’ll continue to focus on the available portfolios. In this regard, BBAM provides FLY with the expertise in negotiating more complicated transactions, and the deep relationship throughout the aviation industry to secures such opportunities.

And finally, we will pursue other opportunistic acquisitions and deals, including aircraft sales, when we think the potential return support then.

Now, I’d like to add some remarks in FLY’s second quarter earnings results for Gary Dales takes you through them in more detail.

Moving now to the second quarter earnings release. You’ll note several significant events and outcomes. Obviously we highlight the significant acquisition which have just announced. This transaction was possible because FLY continued to generate strong available cash flow, which totaled $31 million in the quarter, and $59 million in the six month through June 30.

At quarter end, FLYs total of 188 million in unrestricted cash, and this figure is growing on a monthly basis. At the end of the quarter, all of FLYs 60 aircraft were on lease, and this facet reflects in our operating lease revenue and in our core earnings.

We did however make two significant charges in the quarter. One of $1.7 million for expenses related to target acquisitions, including the acquisition discussed above, and 2.2 million readying aircraft for delivery to new lessees during the quarter.

Together these charges reduced our EPS by approximately $0.15 per share in the quarter. Meanwhile, as we focus on our acquisition activities, we did not sell any aircraft in the quarter and there’s no one-off in these adjustments. As a result of these factors, we report net income of 1.4 million for the quarter, equal to $0.16 per share.

On July 15, FLY declared its 15th consecutive quarterly dividend. This dividend will be paid on August 19, to shareholders of record of July 29. We continue to recognize the importance of the dividend. We have paid a quarterly dividend every quarter since our IPO. Including through the financial crisis. And we believe this history firmly demonstrates our views on the dividend.

We also believe that the industry environment which FLY operates continues to be positive, and that the strengths that FLY already has compliments by the support of BBAM with our new portfolio, further strengthen the company and its future prospects, and will create further value for our shareholders.

With that, I will turn it over to our CFO Gary Dales, will take you through the quarter [inaudible] in more details.

Gary Dales

Thank you, Colm. We’re reporting net income for the quarter of $4.1 million or $0.16 per share. This compared to net income of $13.2 or $0.46 per share for the second quarter of 2010.

For the six month ended June 30, 2011, our net income was $6.9 million or $0.26 per share as compared to net income of $29.8 million or $1.01 per share for the same period in the previous year.

The results for both 2011 and 2010 were impacted by unusual items that warrant further discussion. During the second quarter of 2011, we incurred charges of approximately 1.7 million associated with the [inaudible] acquisition. We also incurred $2.2 million readying three aircraft for deliveries that took place in the second quarter. The 2010 results included charge of $2.2 million, associated with our separation from Babcock & Brown.

On the revenue line, the second quarter 2010 results included $10.6 million of end-of-lease revenue compared to $2.9 million in the same quarter of 2011. Our total revenues for the second quarter were $55.2 million and include operating lease revenue of $54.2 million and approximately $1 million of other income.

Operating lease revenue for the second quarter of 2011 of $55.2 million compares to operating lease revenue of $61.4 million for the same period in the previous year. The decrease is primarily due to the decline in end-of-lease revenue, partially offset by increases and lease rentals.

Total expenses for the second quarter of 2011 were $50.1 million compared to $48.1 million for the same period in the previous year and consist of depreciation expense of $20.9 million, interest expense of $18.3 million. Selling, general and administrative expenses of $8.2 million, and maintenance and other cost of $2.6 million. Total expenses increased approximately $2 million or 4% compared to the same period in the previous year.

Total expenses for the six month period ended June 30, 2010, were $96.3 million compared to $95.1 million incurred during the same six month period in the previous year. Our provision for income taxes for the second quarter of 2011 was $1 million representing an effective rate of 19.7%. The effective rate for the same period in the previous year was 14.1%.

The increase in the effective rate is due to taxes on the BBAM earnings and an increase in the amount of non-deductible expenses.

Our balance sheet remains strong, at June 30, 2011, we have total assets of $2 billion of which $1.6 billion is invested in flight equipment and held for operating lease.

Colm had told you about our cash balance which totaled 344 million at the end of June. Our available cash flow or ACO was $30.8 million for the second quarter of 2011 compared to $42.5 million for the same period in the previous year.

On a per-share basis, ACF was $1.19 for the second quarter of 2011 compared to $1.47 for the same period in the previous year. The decrease is primarily due to the decline in end-of-lease revenue.

We define ACF as net income, plus depreciation, amortization lease incentives, and debt issuance cost, share-based compensation and deferred income taxes, all noncash charges. We believe that ACF provides a meaningful major of FLYs capacity to reinvest in our business and to execute other initiatives designed to create shareholders value.

However, actual cash available for distribution may differ from our ACF major because of other cash expenses that are not reflected in net income. You will find the reconciliation of ACF to net income, to most directly comparable GAAP measure, at the end of our press release issued this morning.

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

Colm Barrington

Thanks Gary. Thank you everyone for sticking with us through what will be a long session. As you can see, we are really excited about the recent development of FLY and about our prospects for the future. We hope and believe that these developments will add value to the company and to its shareholders.

And we’re now available to take your question.

Question-and-Answer Session

Operator

(Operator instructions). Your first question comes from Sameer Gokhal from KBW.

Sameer Gokhal – KBW

Thanks for taking my questions. I just want to clarify something. In terms of the cash that you actually paid for the transaction, I think you’d mentioned the number was at 160 million or so.

Colm Barrington

It’s 145 million.

Sameer Gokhal – KBW

145 million, okay, thank you. Okay, so then after quarter end, of course you end up with a cash balance of roughly kind of in the 44-$45 million or so pro forma for the acquisition?

Colm Barrington

Well, it’s a bit more complicated than that. We ended the quarter with about 188 million in non-restricted cash. We’re generating about 10 million cash a quarter and we expect to close on this transaction on or about October 1. So we will have increased our cash, unrestricted cash balance by the time the transaction closes.

In addition, we pulled about 144 million face value of our own bonds, which after repayment of some debt, which we have attached to them, if we can sell in the market and generate about another $19 million. So you really need to look at our available cash on restricted that totaled to 300 million than 188 million.

Sameer Gokhal – KBW

Okay, and then you know, based on the cash numbers that you just mentioned, I mean, at this point are you contemplating any sort of change to your dividend policy? I know you’d mentioned you’d be on the lookout for additional acquisition opportunities as well and I think you’ve sort of changed it the dividend policy any change expected there?

Colm Barrington

I think it’s a little bit early to be looking at dividend policies. You know, we’ve stated pretty clearly that we’ve made 15 consecutive dividends, we’ve made dividends throughout the financial crisis and we are, you know, we are now in the middle of a major acquisition so we’re really not focusing on any change of policy at this moment.

Sameer Gokhal – KBW

Okay. That’s helpful. And then, you know, in terms of the growth in revenues that you referenced, I mean it seems to be in line with 80% growth in the portfolio, the size of the acquisition, should we just read into this that you should look at it as in terms of 80% growth in EPS or is there any additional leverage to pull so that you actually think that you could have EPS growth faster than the growth in the revenues pro forma of the acquisition?

Colm Barrington

We’ll be trying not to give that forecast, but I think you know, you’re 80% growth in revenues is probably, you know, that would be a reasonable assumption at this point in time.

Sameer Gokhal – KBW

Okay. And then just my last question on the weighted average on your debt funding that you got or that you assumed in association with this transaction, you had mentioned the weighted average cost and I missed that. Would you mind telling me what that is again.

Colm Barrington

Yeah, the weighted average is approximately 6%.

Sameer Gokhal – KBW

6%. Great, thank you.

Colm Barrington

Okay.

Operator

Your next question comes from Helane Becker from Dahlman Rose.

Helane Becker – Dahlman Rose

Hi. Thank you very much operator. Hi, guys. Just a quick question. Did you talk about fleet dispositions at all with the combined portfolio or are you going to keep those, you know, all those aircraft? Could you just talk about that?

Colm Barrington

Hi, Helane, I’ll take the question. Yeah, we did mention fleet’s disposition. If we can sell aircraft, which – at a price that is good pressure on us, we will continue to look at all those opportunities. Now that the portfolio is somewhat larger, we do have more flexibility to move aircraft out of it if we find a good opportunities to do so. As you know, we sold several aircraft over the last year or so at very significant gains to absolute value, and we believe there are more aircraft in our portfolio which we could sell at similar significant gains.

Helane Becker – Dahlman Rose

Right, but like you have the classics, you’re picking up some 717s, you have the 757s, you’re picking up some more wide bodies. I mean, I’m just sort of wondering about those, you know, obviously you want to stay with the A320s and the next generation 737s ,but there’s some of those older aircraft that are starting to get a little long in the tooth, so I was just kind of wondering about them.

Colm Barrington

Well, actually, out of our 109 aircraft today, we’ve only got three classics at this point in time, and they’re all [inaudible]. We have the six new 717s I referred to in our statement and they’re on long term lease with Qantas, so we’re very comfortable with those aircraft. As I said in the statement, we’ve made reasonably conservative residual assumptions on the aircraft, so a combination of those residual assumptions and the [inaudible] rentals makes us feel very comfortable with those aircraft, and similarly with the [inaudible] piece which are in the portfolio, we have made reasonably conservative residual assumptions with two very good lessees [inaudible].

So I think the important thing to look at is out of 49 aircrafts, 40 are [inaudible] next generation [inaudible]. But now we have 80 of our 109 aircrafts are of this category and we’re very comfortable with the balance of the portfolio.

Helane Becker – Dahlman Rose

Okay, that’s great. Thank you very much.

Operator

Your next question comes from Joe Gill from Bloxham.

Joe Gill - Bloxham

Good afternoon, and congratulations on what seems to be a very important deal for the company. And I’ve got three questions please. And firstly, could you comment a little bit on the whole issue of residual value of projections around the A320 and 737 families in light of what’s been happening with NEO and announcements from Boeing and American Airlines recently? And as to whether or not that altering any assessments, essentially valuation of these types of aircraft as we go into the second half?

And secondly, in relation to the sale and less marks, what is that marketplace like over the past quarter and is demand very strong, competition fairly intense, and how is that affecting your ability to deliver?

And finally, and in relation to trading of aircraft, you mentioned during the quarter you didn’t trade any airplanes [inaudible]. And what is that marketplace like because I understood from various people that the market is reasonably firm and solid over the past couple of quarters, and I’m just interested as to what you mean out of pull the trigger on additional aircraft sales in that period? Thank you.

Steve Zissis

Joe, this is Steve. Thanks for the questions. On your first one about residual assumptions and what’s going on with the NEO, and the re-engining of the BNGs, you know, our general view is that it will have some residual affects to [inaudible] on the size of these aircraft in the longer term. And we’ve [inaudible].

With respect to your question on sale lease backs, I think as we said on several calls and on the other less focused [inaudible], the market is, you know, very active right now and is very competitive on the sell lease back markets. There’s quite a bit of capital chasing those brand new sell lese back deals out there, so you know, we’ve seen pricing almost increase quarter by quarter and – on those activities.

And then with respect to your last question, trading aircraft, I mean, we’re consistently in the market offering our aircraft to other lessors and financing entities. We have, as Com had mentioned, sold a handful of aircraft in the past year and we continue to look at those opportunities as they come along. Obviously, if we thought we were getting exceptional pricing that it helped our shareholder value [inaudible], we have no problem in selling some of our aircraft.

So you know, we look at that from time to time. It’s not our primary objective in other words, liquidate the portfolio, but we do look at it from time to time, and we will continue to do that.

Joe Gill - Bloxham

Okay, thank you.

Colm Barrington

Just adding to your question, Joe, the recent decision by Boeing to re-engine the 737 has actually give us a significant boose to 757 values, of which we have 11 aircraft in our portfolios, so actually [inaudible] of that, so that was done for those 757 values.

Joe Gill - Bloxham

I’m sorry. What – why has that happened?

Colm Barrington

Because we – originally Boeing was going to – everybody [inaudible] aircraft to replace the 737s.

Joe Gill - Bloxham

Okay, yeah.

Colm Barrington

And the fact that they’re re-engaging the existing model actually has given quite a boost to 757 values.

Joe Gill - Bloxham

Okay. All right, thanks.

Operator

Your next question comes from John Evans with Edmunds White Partners

John Evans – Edmunds White Partners

Can you just talk a little bit about what you think the portfolio or the book value will be worth once you close the transaction, and then can you also just talk a little bit about your thought process during the transaction? Now that you’ve announced it, can you start to resume your stock buyback since you know, your stock’s significantly below books?

Colm Barrington

Okay, John, well, first of all, the addition of - our current aircraft are valued on the balance sheet at about 1.6 billion and this portfolio is valued at about 1.4 billion. So after completion of the transaction, our combined portfolio would be valued at about $3 billion. It won’t have any impact on our net book value in that we are essentially turning cash into aircraft, so net book value will stay the same.

John Evans – Edmunds White Partners

Okay.

Colm Barrington

We still have a stock buyback program. It’s a 30 million program, which we initiated in May and we still have that stock buyback program in place.

John Evans – Edmunds White Partners

Got it. And so from the standpoint, are you precluded during this time period before the transaction complete of not buying the stock?

Colm Barrington

No, not at all. We have been a little bit reserved about buying stock when we knew the transaction was about to be completed because we thought it might be unfair to our shareholders buying shares back at a discount when we were aware of this transaction going forward. But now the transaction has been announced and we are quite free to buy stock as we like.

John Evans – Edmunds White Partners

And then help me understand then, I know that you guys have been very good stewards of capital. But obviously your revenues are going to go up substantially and your income is going to go up substantially. So I guess can you talk a little bit about the percentage of your dividend as a piece of your income is going to go down, and I guess why wouldn’t you keep that at least growing over time now that you’ve grown the portfolio so dramatically? Can you just help us understand that insight?

Colm Barrington

Well, I think all we said, while we have continued to pay a quarter dividend of $0.15 per quarter including during that difficult time in the world financial and the aviation markets. We’ve now added the portfolio, hopefully add to our [inaudible] cash flows and obviously we can have a look at the dividend going forward. [Inaudible].

I think our actions show that we are determined to apply we’re a dividend paying company and that’s our policy.

John Evans – Edmunds White Partners

Right. And the last question, and I’ve asked you this before, but I'm sure you’re as frustrated as shareholders and now maybe you’ve made this transfer more – transforming acquisition you’ll get more coverage and be more relevant, but at some point, has the board ever discussed, hey, you know, our book value is this and our book’s probably understated and if we could go out and sell and dissolve this company for a heck of a lot more than it’s trading on the screen, is that – how do you guys think about that?

Colm Barrington

Well, we obviously can’t disclose our board discussions, board meetings, but obviously we are comfortable with the fact that we are trading at a very significant discount to book value where [inaudible] for example, new stock options trading at a [inaudible], we’re surprised by that and we’re hoping that the fact that we’re now showing growth in the company will encourage people to get the share price up and the share price will move up approaching book value or exceeding it hopefully.

So all we can do, frankly, John, is we can do our best to make the company as successful as possible and hope that the market responds positively to that.

John Evans – Edmunds White Partners

Sure, no, I understand that. The final question, I’m curious from the standpoint of the portfolio, just to make sure it’s fully leased in the new portfolio you’re buying and I guess when is the first potential that you have for leases to roll off?

Colm Barrington

I think we have, sorry Steve, do you want to talk of that?

Steve Zissis

Yeah, John, [inaudible]. We have one aircraft available in 2011 which comes at the end of the year. We have nine aircraft available in 2012 and eight aircraft available in 2013. So I think it gives us nice exposure to what we think is an increasing lease rate environment for aircraft. So I think we’ll take advantage of the recovery of the market and the demand for aircraft as these aircraft come off lease.

John Evans – Edmunds White Partners

Got it. And – can I hit that on a finer point? So because aircraft demand is getting stronger, you talk about residual values are going up. But do you actually think that as you roll off some of these leases, lease rates will actually start to move up because of the demand?

Steve Zissis

Yeah, currently on the Airbus family and the Boeing NGs, we see increasing rates of overall lease rates. So we do see rates going up over time. And I think it’s going to be exasperated by the fact that you saw what happened at the [inaudible] show where Airbus basically signed up 1,000 new NEOs, American’s come in with a very significant order and when you start thinking about the refleeting requirements required by the legacy carriers in the U.S., there’s going to be tremendous demand for these narrow bodies, in our opinion, in the next three to five years.

So we’re quite comfortable with the aircraft profile [inaudible] and the fact that these aircrafts are, or at least a portion of these aircrafts are coming off leases available to our clients.

John Evans – Edmunds White Partners

Right. So can you just give us an example maybe potentially of how much higher the market is right now for the narrow bodies or where it is compared to kind of the average of your portfolio? I’m not saying you’re going to get that, but can you give us a sense of that?

Steve Zissis

Well, I don’t have those numbers off the top of my head, but if you call me after the call we could do it for you. But it’s – I think if you just look at the marketplace in general, John, you know, lease rates on NGs have probably gone up 20% in the last year. And you know, admittedly, the Airbus market, the narrow body, the Airbus market has been a bit softer, but we’re seeing signs of that recover quite quickly. So it should be up and I'm thinking that 15 to 20% category, we think in the next year.

Operator

Your next question comes from Rich Fitzgerald with Jefferies Investments.

Rich Fitzgerald – Jefferies Investments

Hey, guys. Congratulations on the portfolio acquisition announced today. I apologize if this has gotten address already, but I wanted to ask about the decline in book value per share quarter over quarter. It seems like roughly book value might have gone down about $0.30 and I think only about 4 of that 30 was related to under earing the dividend on a GAAP basis. So I was just curious as to what accounted for the balance of that decline.

Gary Dales

This is Gary. Thank you for the question. The other piece in the equity section is the change in the fair value of deriviates. And that fair value has gone away from us for a little bit. But the other [inaudible] performance are the net income which adds to the book value and the dividend, which takes away from the book value.

Rich Fitzgerald – Jefferies Investments

Okay. Got it. thank you.

Operator

You have a follow up question from Sameer Gokhal with KBW.

Sameer Gokhal – KBW

Thanks. I was just wondering in terms of the, you know, the payment for this portfolio of assets, I mean, can you frame that for us a little bit in terms of a premium or discount to book value of assets that were required?

Colm Barrington

I’m sorry. I don’t quite understand the question. I mean…

Sameer Gokhal – KBW

We know how much cash we need and we know how much debt you took on, but from, you know, people – one of the valuation metrics people use I believe is price to book value. You know, for your company, others as well, and if you were to look at it similarly as to what price you paid for the book value of those assets that you bought, what would that premium or discount be?

Colm Barrington

Well, we don’t actually know what the vendor’s book value is. All we can do [inaudible] is compare it to the appraised based values [inaudible].

Sameer Gokhal – KBW

Okay. No, that’s fair. I just thought you know, if you had some color on it, that would be helpful, just to frame you know, that valuation metric relative to the valuation of other companies in the sector. But I appreicate that you might not have had that information. So thank you for that.

Colm Barrington

I mean, basically we book these aircraft with willing buyer, willing seller, so all going well with our accountants, they will go into our balance sheet at the price we paid for them.

Sameer Gokhal – KBW

Okay. I understand. Thank you.

Operator

Your next question comes from William Mansfield with Barclay Asset.

William Mansfield – Barclay Asset

Thank you, gentlemen. I just wanted to add onto the question that was talked about cash and cash flow earlier. I think you answered earlier that you’re currently generating $10 million a quarter I think it is in unrestricted cash, is that correct?

Colm Barrington

Yes, William, I mean, if you look at our cash on an ongoing basis, our ACF for the quarter was just over $30 million, so you’re about right there.

William Mansfield – Barclay Asset

But the 10 million a quarter in unrestricted cash, cash that’s not getting trapped…

Colm Barrington

10 million per month.

William Mansfield – Barclay Asset

10 million per month is generated. Okay, excuse me. So the – when you were doing that calculation with the prior gentleman about what’s your pro forma unrestricted cash, it was 10 million a month. Okay. And you talked about this transaction being positive free cash flow after debt service. Would you have a pro forma number for what that 10 million a month would become?

Colm Barrington

We can’t really talk about the future so I can’t give you a pro forma number of that. We obviously have our own forecast, but we can’t disclose at this point.

William Mansfield – Barclay Asset

Okay. Let me see if I can try a different way. You’ve given us the revenue numbers and you’ve given us the interest rates on the debt. And I think you said there’s no debt amortization of that. Is that correct?

Colm Barrington

Well, [inaudible], it’s short term. Yeah.

William Mansfield – Barclay Asset

Okay. Is beyond debt amortization, does excess cash from these new airplanes get trapped anywhere or would that be available to corporate?

Colm Barrington

No, cash trapped. The cash will be available, and you see it emerging as we report over the next few quarters. It’s a bit premature saying more about it right now.

William Mansfield – Barclay Asset

Okay. But I can do my own estimates, I’m pretty sure, from the numbers you’ve given. Thank you very much. That was my question.

Operator

And your final question comes from Richard Haydon with Gild Capital.

Richard Haydon – Gild Capital

Morning. No questions on dividends.

Colm Barrington

Rick, I don’t believe it.

Richard Haydon – Gild Capital

What is the expected depreciation against the [inaudible] feet?

Colm Barrington

Gary, do you want to… [inaudible]?

Gary Dales

Yeah, we depreciate the aircraft over 25 years to a 15% residual value and so the portfolio was a little less than 8 years old so there’s approximately 15 – 17 years remaining of life.

Richard Haydon – Gild Capital

And obviously everybody’s trying to put together at least the framework of a pro forma, what do you expect the GA will be reduced relative to the current GA experience by GAM?

Colm Barrington

[Inaudible] because you know, our GA is stable in management fees to BBAM. [Inaudible] GA.

Richard Haydon – Gild Capital

But do you think there will be a saving here?

Colm Barrington

Again, I don’t know what their GA was, so I can’t tell you. But if you look at our existing GA and relate it give or take to the portfolio, it will be a little bit lower, but not [inaudible] to existing GA as [inaudible] revenues.

Richard Haydon – Gild Capital

Okay.

Gary Dales

And we are expecting some synergies so there will be some [inaudible] scale as we grow the portfolio, so it’s not a dollar-for-dollar increase.

Richard Haydon – Gild Capital

Okay. I guess everybody’s trying to noodle through what the increment to the FLY shareholder is. Thank you for your help on that.

Colm Barrington

Okay, thank you.

Operator

And this does conclude today’s conference call. You may now disconnect.

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