Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Fly Leasing Limited (NYSE:FLY)

Q3 2011 Earnings Conference Call

November 2, 2011 9:00 AM ET

Executives

Matt Dallas - Manager, IR

Colm Barrington - CEO

Gary Dales - CFO

Steve Zissis - President and CEO of BBAM

Analysts

Helane Becker – Dahlman Rose

Andrew light - Citigroup

Douglas Runte – Deutsche Bank

Richard Haydon - Yield Capital Partners

Gary Liebowitz – Wells Fargo Securities

Glenn Engel – Bank of America

Alex Lieblong - Key Colony Funds

Vincent Walden - Thornburg Investments

Operator

Good morning. My name is Kaneisha and I will be your conference operator today. At this time, I would like to welcome everyone to the Fly Leasing third quarter 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s 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 third quarter earnings conference call. Fly Leasing, which we will refer to as FLY or the Company throughout this call, issued its third quarter earnings results press release earlier today, which is posted on the Company's website at www.flyleasing.com.

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

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

Forward-looking statements are based on current expectations and assumptions of FLY's management which are subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to factors that are summarized in the earnings press release and are described more fully in the Company's filings with the SEC. Please refer to these sources for additional information.

FLY expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views or expectations, or otherwise.

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

I will now hand the call over to Steve Zissis, the President and CEO of BBAM the company that manages FLY’s fleet in order to give you his view on industry conditions. Steve?

Steve Zissis

Good morning everyone and thank you for joining us today. As is usually the case, you will be hearing from Colm and Gary on today’s call. So I will keep my comments rather brief. But I’ll be happy to answer any questions at the end of the prepared remarks.

I’d like to start off today with some high level comments on the supply and demand dynamics currently in place in the commercial aircraft leasing business. Given the current economic stability in Europe. And slowing growth in China, demand for leased aircraft has performed and continues to perform better than one might have expected.

Premium long-haul traffic remains robust and customers filling these seats drive profitability for legacy and flight carriers around the world. But with that said, the short-haul, charter and low cost carriers are clearly feeling the pinch of the slowing global market environment.

And this may impact demand for leased aircraft in the foreseeable future. While it is true that a handful of European and US carriers are shrinking their capacity, most networks are on hold or growing service leads. We have been predicting for several years that the fleeting requirements of the US legacy carriers would push demand for aircraft to higher levels. And this dynamic is clearly taking hold in the industry.

Several new orders have recently been announced by these airlines and we expect this free fleeting trend to continue. The supply of aircraft continues to notch up as Boeing and Airbus increased production across the board.

The Boeing narrow body equipment continues to outperform the comparable Airbus products in terms of demand and lease rates. I had expressed a view on a prior call that the demand for Airbus equipment had increased and that we were optimistic about the earnings potential of these aircrafts in the future.

But increasing supply has softened our view on the speed and strength of this recovery over the near term. I would now like to make comments briefly on the state of the financing markets for aircrafts leasing. There are three main pillars for debt financing in the aircraft leasing business today. They are one ECA and EXIM financing, two capital markets financing and three bank loan financing.

It will be no surprise to anyone on this call that capital market conditions continue to be highly volatile, making it difficult for less source to rely on these markets or perhaps more troubling for us and the reason is recent pullback in bank loan financing activity for US dollar loans. This is particularly true for the French banks, who have been significant lenders in the aviation industry, even through the credit crisis that began in 2007 and 2008.

The German banks continue to actively lend into this sector along with Asian, Australian and North American banks. We are monitoring this situation very closely. And always careful to ensure that we don’t have any significant mismatches in the Company’s commitments on the asset side of its balance sheet with its financing commitments on the liability side.

We feel that the company is well positioned to navigate these challenging financing conditions, particularly given our experience in these markets. BBAM has arranged over $12 billion of non-recourse bank debt and capital markets debt over its 20-year history and we know the players very well. We also expect to see increased activity by the export credit agencies as it will likely need to step up again to directly and indirectly provide support to the sector’s financing activity.

Finally, those of you who watch the Company closely will know that FLY’s investment in BBAM has been a great asset for the Company on both cash flow and earnings basis. BBAM continues to be healthy and we are all working hard to ensure the success of both companies as we all work together in partnership to profitably grow our combined franchise in this sector.

I will now turn the call over to Colm.

Colm Barrington

Thank you, Steve and good morning everyone. The highlights of FLY leasing since our last call, has been the completion of the acquisition of a portfolio of 49 additional aircrafts that we closed and acquired on October 14. This is a truly transformational transaction for FLY, increasing our portfolio by 89% to a total of 109 aircrafts.

Of the 49 new aircrafts we acquired 40 are A-320 family and Boeing 737 next generation aircraft. These represents possibly 80% of the new portfolio by value and complement FLY’s existing modern fuel efficient and widely used aircraft types. Of the remaining nine aircrafts in the new portfolio, all are on lease to top quality credits and eight are on long-term leases.

Our fleet of modern and fuel efficient commercial aircraft leased under long-term binding contracts to many strong well run airlines around the world, including some of the industry’s best credits.

Of our current total of 109 aircrafts, 85 aircrafts representing approximately 77% by value of our total portfolio. Our Airbus A-320 family and Boeing 737 next generation types give FLY a real competitive advantage when it comes to re-leasing our aircrafts.

This have been and we expect to continue to be an important factor in maintaining FLY’s highest fleet utilization. $1.4 billion acquisition of the new portfolio was completed without the need to raise any new capital. On completion, FLY assumed approximately $1.22 billion of secured non recourse debt.

This was a particularly attractive aspect of the transaction as Steve mentioned earlier current debt financing for aircraft transactions, particularly in large amounts is becoming more difficult to source as several major European banks previously active in the sector are cutting back on their lending for aircrafts and other US dollar denominated assets.

The balance of the $1.4 billion purchase price was funded from FLY’s full unrestricted cash, which we have generated from our existing portfolio. As a result, we did not have to raise any new equity capital. The increase in our net income which you expect in 2012 and beyond will ever have a particularly positive impact on our earnings per share.

The portfolio acquisition was completed by BBAM on behalf of FLY that again reflects the ongoing value to FLY is being serviced by a major player in the global aircraft leasing industry. BBAM now manages approximately 460 aircrafts, valued at approximately $12 billion.

And these include FLY’s 109 aircrafts valued at approximately $3 billion. In addition to the new portfolio by the way on October 28, FLY purchased one additional Boeing 737, 800 next generation aircraft.

FLY has a 15% interest in BBAM, just given of the significant interest in the management income from this large portfolio, along with income from aircraft origination remarketing and sales transactions. This business is complementary to FLY’s core leasing business, is cash accretive as producing strong returns to FLY and its shareholders.

In September quarter, we recognized pretax income of $1.3 million, from our investments in unconsolidated joint ventures which include in our investment in BBAM. And this source is now becoming a meaningful part of FLY’s ongoing income. FLY will pay BBAM an origination completion fee of $12.5 million in respect of the new portfolio of acquisitions. This represents less than 0.9% of the transaction value and so significantly below the 1.5% fees that BBAM is entitled to for one-off aircraft purchases on the terms of our management agreement.

As the new portfolio of acquisition will be accounted for the business combination this fee along with an additional amount of approximately $4.5 million for other fees and expenses will be exempt in our fourth quarter financial results rather than amortized over several years.

We are really excited about our new portfolio which we believe will be truly transformational for FLY. Over the last two and a half years, we concentrate on opportunities for FLY that arose as a result of the difficulties in the global financial markets. These opportunities allowed us to repurchase 24% of our shares at less than $8 per share and repurchase 20% of our securitization notes for less than 50% of face value.

We have since told some of these notes as a significant gain and today retained 15% of our securitization notes. These product transactions have added strength to our balance sheet and have enhanced shareholder value. Coming to the third quarter, in the quarter our fleet had a 100% utilization rate with all of our aircrafts on lease.

As we started the second month of the fourth quarter, all of the 109 aircrafts in our larger fleet are on lease. In the third quarter, we did had payment issues with one airlines that leased two aircrafts from FLY and as a result, we did not recognize any rental income from that airline in the September quarter.

We have since received a significant payment from that airline, which we will recognize as income in the December quarter. Our September quarter net income was $3.4 million producing earnings per share of $0.13. Reductions in the prior year is as a result of several factors including the delay in rent receivable referred to above. Also in quarter three 2010, we recognized an end of lease adjustment of $3 million and a gain on the sale of aircraft of $8.9 million, neither which contributed this year.

These two factors contributed approximately $0.40 of EPS in the 2010 September quarter. Incidentally we do expect to completely lease one aircraft sale in the fourth quarter. Our available cash flow in the September quarter was $28.8 million or $1.12 per share. On October 17, we declared a dividend of $0.20 per share representing 18% available cash flow. This dividend will be paid on November 21 to shareholders of record on October 31. This is now the 16th consecutive quarterly dividend declared by FLY since we became a public company in September 2007.

I will now hand over to Gary Dales our CFO for a deeper look at the financials.

Gary Dales

Thank you, Colm. As Colm mentioned we are reporting net income for the quarter of $3.4 million or $0.13 per share. This compares to net income of $12.2 million or $0.45 per share for the third quarter of 2010. During the third quarter of 2010 we recognized a pretax gain of $8.9 million from the sale of three aircrafts. We did not sell any aircraft in the third quarter of 2011. For the nine month period ended September 30 2011, our net income was $10.3 million or $0.39 per share on a diluted basis. As compared to net income of $42 million or $1.46 per share, for the same period in the previous year. As I mentioned during 2011, we have not sold any aircraft although we do have repurchase and sale agreements for the sale of a Boeing 737-800.

Also during the third quarter of 2010, we recognized $3 million in end of lease revenue associated with the termination of one of our leases. There was no end of lease revenue in the third quarter of 2011.

On a year-to-date basis, end of lease revenue has totaled $2.9 million, during the nine months ended September 30, 2010, end of lease revenue amounted to $17.2 million. Finally in the first quarter of 2010, we sold an option we held to repurchase our debt recognizing a pretax gain of $12.5 million. This largely explains decline in our pretax net income for the quarter and on a year-to-date basis.

Now let me discuss the results in little more detail.

Our total revenues for the quarter were $49.4 million and include operating lease revenue of $47.4 million earnings from our joint ventures of $1.3 million, proceeds from a lease termination settlement of $528,000 and interest and other income of $233,000

Operating lease revenue for the third quarter of 2011 are $47.4 million compares to operating lease revenue of $51.7 million for the same period in the previous year. As I mentioned, there was $3 million of end of lease revenue in the third quarter of 2010.

In addition, operating lease revenues are also impacted by the sale of the three aircrafts last year. These decreases were partially offset by revenue generated from the aircrafts we purchased at the end of last year and in the first quarter of this year.

Total expenses for the third quarter of 2011 were $45.4 million compared to $48 million for the same period in the previous year and consists of depreciation expense of $21.2 million.

Interest expense of $18.3 million, selling general and administrative expenses were $5.7 million and maintenance and other costs of $184,000.

Total expenses decreased approximately $2.6 million or 5.5% compared to the same period in the previous year. The decrease is primarily due to a decline in share-based compensation expense and maintenance expenses.

Total expenses for the nine-month period ended September 30, 2011 were $141.7 million compared to $143.2 million for the same period in the previous year, a decline of 1%. Our selling, general and administrate expenses include $1.9 million associated with a recently closed transaction. Under the current rules, expenses incurred completing an acquisition must be expenses incurred. We expect to recognize $17 million in fees and expenses associated with this acquisition in the fourth quarter.

Maintenance expenses during 2011 have amounted to $4.1 million, an increase of $1.7 million over amounts incurred during the same period in the previous year. These expenses were incurred preparing aircraft for re-lease. All aircrafts are currently on lease.

Our provision for income taxes for the third quarter of 2011 was $645,000 million, representing an effective rate of 15.9%. The effective rate for the same period in the previous year was 16.4%.

As Colm mentioned, we were able to make the $1.4 billion acquisition with cash on our balance sheet and no new capital. In total, the acquisition require approximately $115 million in cash, excluding transaction expenses of approximately $19 million. After the acquisition, our assets will increase from approximately $2 billion, to approximately $3.4 billion of which nearly 90% will be invested in plant equipment held for operating lease.

After the acquisition, our unrestricted cash balance will be approximately $90 million. Our available cash flow or ACF was $28.8 million for the third quarter of 2011, compared to $40.4 million for the same period in the previous year.

On a per share basis, ACF was $1.12 in the third quarter of 2011, compared to $1.48 for the same period in the previous year. The decrease is principally due to the lack of end of lease revenue in 2011. For the nine-month period ended September 30 2011, our ACF was $87.9 million or $3.37 per share.

For the same period in the previous year, ACF was $127.9 million or $4.43 per year. We define ACF as net income, plus depreciation plus depreciation, amortization of lease incentives and debt issue costs and share-based compensation and deferred income taxes, all non-cash charges. We believe that ACF provides a meaningful measure of our capacity of our capacity to reinvest in the business and to execute other initiatives designed to create shareholder value.

However, actual cash available for distribution may differ from our ACF measure because of other cash expenses that are not reflected in net income. You will find a reconciliation of ACF to net income, the 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

Thank you, Gary. FLY is now has grown its feet by more than 130% since we went public in late 2007. In addition the company has repurchased more than 24% of the shares and retained 15% of the securitized debt by paying a cash dividend for 16 consecutive quarters.

Our strategy of focusing on opportunities for smart growth combined with our commitment to enhancing shareholder value will continue to deliver strong return to the shareholders. FLY will continue leverage the global platform and strength the BBAM a global leader in the aircraft leasing industry to continue to look for prudent opportunities to grow our fleet and to maximize trading opportunities that we can cover in order to maximize shareholder value through the cycles.

We are now ready to take your questions.

Question-and-Answer-Session

Operator

(Operator instructions) Your first question comes from Helane Becker.

Helane Becker – Dahlman Rose

Thanks very much, operator. Hi guys, just a couple of questions. One on the delayed lease payment, can you say what, if you can say which airline it is? Can you say what region the aircraft is in? Number one and number two are there any other concerns, I know it says and you said that you received a partial payment but are there concerns on that that you would want to take back one or both of those aircrafts?

Colm Barrington

Helane, I don’t think – thank you for your question and hello. I don’t think we’d like to tell you which region because if I gave you which region, you could probably start to juice me which airline and we’d like to keep our airline relationships confidential. We are in discussions with this airline on an ongoing basis about our payment record and we will see how those discussions go over the coming weeks. We don’t – we are not drawing any further conclusions about this airline or other airlines in the region based on this performance.

Helane Becker – Dahlman Rose

Okay and then, my follow-up question is whether or not you have to make any adjustments given the comments that were made at the start about the fact that some aircrafts seem to be coming back at a slower rate than your short-haul would come back?

Colm Barrington

We have been in quite a few lease extensions, is that’s what you mean? So we have been getting after…

Helane Becker – Dahlman Rose

No I think there were some - a comment about the short-haul charter and low cost carriers are feeling the pinch and the A-320 family aircraft don’t seem to be recouping their value as fast as the 737 aircraft. So, I’m just kind of wondering if you have to rethink the valuations of the A-320s.

Steve Zissis

Helane this is Steve. I made those comments at the beginning. So far, I don’t think we need to we think our values of the A-320. We are just trying to highlight the fact that, on the last conference call we indicted to shareholders that we thought the Airbus that would recover a lot quicker than it currently is doing in the marketplace. So lease rates and values are probably not at the levels that we would like to see.

Now will that change going forward? We hope so as the market tightens, but given the global headwinds that we see in Europe and in China, we do have some doubts of how quick that market will firm up.

Helane Becker – Dahlman Rose

Okay. So it wouldn’t cause you to have to adjust any valuations. Is that what you are saying?

Steve Zissis

That’s correct Helane. No adjustments on valuations at this point.

Helane Becker – Dahlman Rose

Okay. And then my last question is with respect to the 717. I think you are getting three or six maybe and the acquisition is I guess the ones that you didn’t talk that calm and do you have any view on that aircraft and what you are thinking about that because it doesn’t seem there are too many airlines are on the world that actually use our plane.

Colm Barrington

I think Helane, as we said, we bought a portfolio of aircrafts, 40 of the 49 aircrafts are tied to be like exactly the A-320 family and 737 next generation. The six 717s we purchased as part of that portfolio; first of all they are on long-term leases. I think the leases run for six and seven years.

So we are very happy about that credits. And secondly, we have a very low valuation of those aircrafts as part of the overall portfolio of transaction. So in the context of the $1.4 billion deal those are very small part of this. So we are actually very comfortable with those six aircrafts.

Helane Becker – Dahlman Rose

Okay, thanks very much. Thank you.

Operator

Your next question comes from Andrew light.

Andrew light – Citigroup

Hi there. Good morning. I’ve got a question on financing. Can you discuss what your net refinancing need is next year and in 2013 assuming the portfolio as it is now and how is that increased because of the relationship?

Gary Dales

Andrew our, term loan, we have to start getting principal arm in the end of 2012.And so we would have some principal payments to make on that loan. That’s about $500 million loan. We have to pay that during the quarter of the following 12 months.

We are in discussions about that and we have plans to what we are going to do about that. And with the new portfolio we have one major facility of about $500 million for $580 million – it’s about $600 million in total which falls due in 2012 also and we are in discussions with th4e lenders about a refinancing extending that facility for six years and we are very confident that that will happen.

All our other facilities are singular aircraft related and we will look at those as each aircraft comes off with existing lease and we have to refinance those.

Andrew light – Citigroup

Okay. And it would be fair to say that because of the close and shrinking at the financial markets and the acquisition you just made have really unlikely to be in third aircraft acquisitions apart from the one you just did in October?

Gary Dales

Well no, I wouldn’t say that at all. There are several portfolios around with existing financing in place and that’s one of the attractions of the portfolio we bought that actually had existing financing attached to the aircrafts and that we also made it condition of buying that portfolio that financing came with the aircraft and as we believe there are other possibilities that we can do that. And for example, we are this aircraft that I mentioned we bought, we’ve done a one-off financing on that aircraft without any major issues.

Andrew light – Citigroup

Okay. Just final question on the given state of debt markets compared to say three months ago and could you just estimate what the approximate increase in underlying financing cost would be on a like-for-like basis compared to say a year ago?

Gary Dales

I think it’s important the portfolio we just bought about two-thirds of the financing attached to that portfolio is fixed rates and we’ve – you’ve inherited an interest rate on that fixed rate part of that financing approximately 6%. About one-third floating rats and the current interest rate in the floating portion is 2.7%. So all in we are just below 5% on that financing.

Andrew light – Citigroup

In terms of new financing just generally you’ll be on the market rather than specific financing to FLY?

Gary Dales

I mean you probably know the process well as we do Andrew. I mean it’s probably margins gone up by 50 basis points in the last six months.

Andrew light – Citigroup

Okay. Great, thanks very much.

Operator

Next question comes from Doug Runte.

Douglas Runte – Deutsche Bank

Good morning. I’m wondering if you can expand a little bit more on the distinction that you made between the Airbus and Boeing narrow bodies. Is there any way you could quantify the wedge that seems to have developed between the two on lease rates and values and also perhaps talk a little bit about what seems to be a slide to the rate with demand increasingly focused on the largest variance?

Steve Zissis

Yes, Doug, it’s Steve. Probably the best way to characterize it is that both the Airbus and the Boeing narrow bodies into a kind of a very wide user base. And they are both very positive our aircrafts are very efficient aircrafts as you know and in demand.

Right, there is no lack of demand on either side. What’s really affecting kind of the Airbus situation is the supply. Right and sometimes there is unforeseen situations with the supply to spike up and there are more aircrafts available than the demand is requiring. So, for the Airbus situation, you’ve got some probably some placements that are with some weaker airlines and you’ve probably got quite a few source that have got on place aircrafts and when you got that situation, you tend to see lease rates go down a lot faster than they go up which is kind of typical with our marketplace.

So, anytime the supply demand is out of balance you tend to see lease rates trend downwards a little bit more quickly than you would expect otherwise and that’s what we are seeing in the Airbus market. Now, in our last conference call in the last quarter we indicated that we thought that the Airbus market was starting to balance out and lease rates were firming basically on the back of the large refleeting requirements in the US legacy airlines which is still in place.

But it seems to be taking longer to take hold and the few airlines recently that either shedding out that’s quicker than we expected because of the downturn in Europe or have gone into financial troubles and gone out of business. So the supply has spiked a bit on the Airbus side which is putting pressure on the lease rates again. So, we do see going through the ride as you said, but we expect maybe lease rates to start firming later in 2012 on the Airbus side.

On the Boeing side, things have been pretty good for the last two years. I would say they have leveled off at this point. They are not increasing as fast as they were earlier in the year but the demand still is very steady with normal supply available.

Douglas Runte – Deutsche Bank

And I guess if you are willing to quantify what can be idiosyncratic transactions is it a 10%, 15%, 20% different from lease rates between the various families. Are you willing to give some sort of a quantification on that?

Steve Zissis

It’s hard to quantify because it’s always different factors that will affect, when you start comparing lease rates from one aircraft to the other, but Doug, you know in general, you can think of the differential in the 20% category.

Douglas Runte – Deutsche Bank

And then another aircraft related question. Most of your passenger 757s seem relatively young. But I’m wondering at what point given the demand for freighter conversions you would start to look at those as candidates for a freighter conversion or other airplanes within your fleet and to what extent would your financing potentially enable or restrict your ability to do that?

Steve Zissis

The 75 in our fleet, in our flight fleet are very young. They are 1999 vintage aircrafts. They will be available probably or make good candidates for freighter conversion. If you follow the company last year we had a older 75 that we did sell. And it went to freight conversion and that’s obviously one area of the market that we are looking for, probably to – probably you are surprised with the demand for 75 was actually it’s pretty good.

Douglas Runte – Deutsche Bank

Right, great. Thanks, very much.

Operator

Next question comes from Glenn Engel. Mr. Glenn Engel your line is open.

Colm Barrington

Hey there, Glenn.

Operator

He withdrew his question. Your next question comes from Richard Haydon

Richard Haydon - Yield Capital Partners

Colm, a number of assigned opportunities due to the performance on this acquisition. Within this context, can you elaborate at all your awarding here that will significantly grow our earnings per share, what’s that maybe amount to?

Colm Barrington

That’ll be more than – I don’t want to get too specific Rich and I’m sure you’ve run your own models and I think we’ve probably supplied you with enough information to help you grow your own model. I think the basic leasing income of the company will go up by at least the factor of – amount by which we increased our portfolio.

So we’d increase the portfolio by 80%. I can see a basic income going up at least that. But I think more important Richard is, that it gives us the opportunity, now we have a bigger portfolio to do more selected trading of aircrafts and to tale of opportunities we see in the market to sell aircrafts, we were a little bit constrained in selling aircraft when we had only 60, now we have a 109, we feel more free to keep moving them on and to acquire more at the same time.

Richard Haydon - Yield Capital Partners

Thank you.

Colm Barrington

It’s a pleasure.

Operator

(Operator Instructions) Your next question comes from Gary Liebowitz.

Gary Liebowitz – Wells Fargo Securities

Thank you and good morning.

Colm Barrington

Good morning Gary.

Gary Liebowitz – Wells Fargo Securities

I might have missed it but did you quantify the revenue impact from the customer who is delinquent?

Steve Zissis

We did not quantify the revenue impact. We will only quantify Gary once we get the seats since the end of the quarter, $1.5 million I believe which represents part of what is due for the period.

Gary Liebowitz – Wells Fargo Securities

Okay, now how many customers do you recognize the lease revenue on a cash basis as opposed to an accrual basis?

Steve Zissis

I believe two of our total FPs were on a cash basis.

Gary Liebowitz – Wells Fargo Securities

Okay and also for the plane that you anticipate selling in the fourth quarter, can you estimate what the gain if there is one on that sale might look like?

Steve Zissis

We are not disclosing that at this point in time. That would come up in our, when we are reporting our fourth quarter.

Gary Liebowitz – Wells Fargo Securities

Okay, thank you very much.

Steve Zissis

Okay Gary.

Operator

Next question comes from Glenn Engel.

Glenn Engel – Bank of America

Hey, couple questions. One is, can you go through what the lease expirations now are with the combined contracts, how many planes come due in 2012 and 2013 and when roughly would those leases made?

Colm Barrington

Glenn (inaudible) well, as you know in 2011 all our aircrafts are placed and there is nothing coming available in 2011. In 2012, we have a total of 21 aircrafts available or coming off scheduled leases, of those 21, eight have already been remarketed. So these have been extended or committed to a new lessee. That gives us 13 available. Of those 13, 10 of those are in the second half of 2012 and of the three that are available in the first half, two of those aircrafts are classic aircrafts and most likely we’ll end up parting those out of selling them and it goes to our book value. So we won't continue to lease those aircrafts. That kind of gives you a picture of what’s going on in 2012.

Glenn Engel – Bank of America

And then those leases would have been made roughly around 2005, 2006 when would they have been originated?

Colm Barrington

That’s a good question. I think a lot of those aircrafts, I am going to say they were done in 2007.

Glenn Engel – Bank of America

And is 2013 any different than, much different than 2012 in aspirations?

Colm Barrington

It’s a little lighter in 2013.

Glenn Engel – Bank of America

And second there was something going on with IR about maintenance deposits that they were trying to get a more uniform way to decide how they are collected and paid. Can you talk about that and whether that will have any impact at all?

Colm Barrington

There was announcement that they would like to standardize the amount of positives and maintenance reserves that lessees pay, but the idea was that some airlines have been taking advantage of by the airlines. I don’t think that has moved very far and it’s come out very recently. And so I don’t think we are prepared to mark one way or another to we know a little bit more about it.

Gary Dales

And it all depends on the credit of the lessee, I mean sometimes you don’t collect any maintenance accruals or security deposit and sometimes you collect several months security deposits and then to a range disclose them. It all depends on the credit of the lessees. So I really don’t think others don’t have a very strong influence over the funds.

Glenn Engel – Bank of America

And finally you talked about the transaction as being accretive, have you quantified that is all and how much you expect it to add?

Gary Dales

Well I think all we said so far is that we expect it to increase our EPS by at least 80%, but it’s increasing our revenues on our portfolio size. So it would be at least an additional pro rata to the increase in the fleet size.

Glenn Engel – Bank of America

Than k you very much.

Operator

Your next question comes from Alex Lieblong.

Alex Lieblong - Key Colony Funds

Hey guys.

Gary Dales

Hi Alex.

Alex Lieblong - Key Colony Funds

I’m so curious when you did bought back some shares, but it seems to me that the best math is the book is truly and if you believe and the book has been $17 or $18 and I think you indicated that you thought it was actually a little bit higher. That the best use of cash instead of putting on another fine would have been to buy in more stock?

Steve Zissis

I think everything in life is, Alex have to be somewhat balanced, and yes I think our net book value is $17.52 per share. You are right on that. And we will continue to buy shares as we see opportunities. But on the other hand we have to also look to growth for the company and I don’t think the share prices will go up if we don’t grow the company as well. So I think we got to do prudent growth as well as the prudent acquisition and buyback of shares.

Alex Lieblong - Key Colony Funds

Well you don’t buy cumulative but I believe it’s growth per share versus just growth?

Colm Barrington

We are very conscious of that and we are not going to do growth for growth sake. We are going to do and look that we’ve just grown the portfolio by 80% without adding any new shares to our register and we think that’s a pretty good achievement.

Alex Lieblong - Key Colony Funds

Yes sir we will too. We thank you for that.

Colm Barrington

Thank you sir.

Operator

Your final question comes from Vincent Walden.

Vincent Walden - Thornburg Investments

Hi good morning. Question for Colm. And I apologize if you covered this but given the new improved EPS and ACF outlook, could you comment on any changes in your thinking regarding capital allocation and dividends? Thank you.

Colm Barrington

We look on a regular basis capital allocation and as I mentioned in the last questioner Alex Lieblong, we will continue to prudently buy shares and we look for good prudent acquisition opportunities to grow the portfolio. As regards to dividend it’s something which we look at every quarter. We paid 16 consecutive dividends. We will look at it again for the next quarter and see where the opportunities arise. If we see other opportunities, spend our capital better we may to those, but if we see opportunities to continue the dividend, we’ll do that also.

Vincent Walden - Thornburg Investments

Okay, great. Thank you.

Colm Barrington

I am probably not be more specific but we do look at this on an ongoing basis.

Vincent Walden - Thornburg Investments

Very good. Thanks.

Operator

You have a follow-up question from Helane Becker.

Helane Becker – Dahlman Rose

Thanks very much for taking my follow-up question.

Just one point of clarification Colm. You said that, that 80% we should think about lease rental rates being up 80%, you said earnings being up about 80% , what would imply the margins on the fleets you are acquiring are going to be similar or are similar to the existing fleet and I would think that there would be headcount reduction from the acquisition and the margins on the purchased fleet would actually be higher. So, could you just explain that and just say whether or not there is a headcount increase as a result of the acquisition?

Colm Barrington

There is no headcount increase, remember Helane we are externally managed by BBAM, though we pay management fees to BBAM, so the management fees will be give or take pro rata for the new acquisition as they are for the existing fleets.

Helane Becker – Dahlman Rose

Okay, all right. Thank you.

Colm Barrington

Okay. Thanks, Helane.

Operator

There are no further questions at this time.

Colm Barrington

We’d like to thank everyone for joining us on our third quarter earnings call. We look forward to updating you again next quarter .

Operator

This concludes today’s conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Fly Leasing Limited CEO Discusses Q3 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts