Ron Wainshal - Chief Executive Officer
Aircastle Limited (AYR) Credit Suisse 2011 Aerospace & Defense Conference December 1, 2011 2:45 PM ET
Good afternoon, everybody. Thank you for sticking around. Aircastle’s Ron is here to present Aircastle’s little bit differentiated strategies than some of the other aircraft lessors. And that they tend to focus on more of the full actual life of the plane, but you know what, I will let Ron tell you a little bit more.
Thanks. I will spend a few minutes trying to figure how this works. Okay. A little bit about Aircastle. Aircastle was built out of the ashes of the U.S. bankruptcy and then economic down cycle of 2004-2005, that’s when we came into existence. And our purpose in life was not necessarily to become the biggest owner of shiny aircraft but to be the best aircraft investor that was around. And the way you do that is you look around like any investor for the best relative value on the investment side.
And I will talk a lot about our investment strategy and how it’s different in why. And you also try to differentiate yourself and establish as much of a competitive advantage as you can in terms of the funding side. We’re not owned by a large engine manufacturer or an insurance company, we’re a standalone company, but there’s still things you can do to differentiate yourself.
And it’s a cyclical business. It’s a business which is entirely global. And despite the cyclicality, that performance of the business has been quite good. I will talk about the market, I’ll talk about what we have bought, how we have done over the cycle, our financial profile and where we see things in terms of opportunities in our plan going forward. But it is a distinct -- we have a different investment strategy as you heard and also different funding strategy.
So a few comments about the market. I am going to talk about both in terms of long-term and short-term. Long-term the market tends to follow GDP and the relationship over time -- and I mean global GDP to be clear, because these are portable assets and when an aircraft lease is over we look around the whole world and find out where the best demand is. It’s a portable asset. And relationship between growth in air travel, which in turn is growth in aircraft demand and GDP, has been about 1.5 to 2 times. So it tends to grow and to move in the other direction in terms of GDP movement at an amplified way.
And that’s true for both the freight market and the passenger market. Roughly the same relationship. Now what's driving our market isn’t what's happening in terms of Europe or in the U.S. to have an effect. But the growth in our markets come from the emerging economies. And the emerging economies have accounted for an increasing share of the order stream and frankly that’s where we see more and more of our business going.
The effect of the -- I will just pause here and talk about American for a moment. We have zero aircraft in American airlines. U.S. airlines historically have done very very little with leasing companies. Although I think that’s changing for the upside. U.S. airlines tend to own their aircraft forever. For 20 years plus they used to rely on tax financings from -- tax shelter financings, they rely on the capital markets. And I think that as the capital markets have gone a little trickier, they have relied more and more, as you many have seen in the headlines, on leasing companies. I think that’s a positive trend.
What's coming out of the American airlines bankruptcy, what capacity they will share and they will share some, will be obsolete aircraft to go to the desert and don’t have any displacement effect on us or our peers. I view the bankruptcy as insignificant in our prospects. There may be some deal opportunities that come as they look to refinance some things coming out of bankruptcy, but in the short term none of the equipment that’s coming out is going to affect our market and we have no direct exposure.
But the U.S. airlines in some respect are a little bit like the European flag carriers. They don’t -- the Europeans do a little bit more in the way of leasing. Air France for example, which has a fine credit, as a policy matter leases a quarter and a third of its fleet, for fleet flexibility reasons. And so I think the market share of the pie is going to grow. For of all this illustrates the long-term growth trends here are significant but I will come back to the near-term.
What the top chart shows is the share of the pie that lessors have. And it’s gone from very small to about a third. And my sense is that you will see us getting close to about 50:50 in terms of the airlines and aircraft lessors ownership. So it’s a bigger share of the pie and it’s a growing pie that grows with the global GDP. And what happens, you know airlines are particularly volatility set of customers from a financial performance perspective, it’s a low margin business with high capital cost and very high economic cyclicality, sensitivity.
Lessors though, if you look at the chart at the bottom, have a different profile. And it’s true for other suppliers to airlines. Just because the airline is having a hard time doesn’t mean that we necessarily do. When airlines go bust and we have reasonable aircraft involved, we can move it. And we have managed through that and I will take you through that in a few minutes in term of how we have managed through the downturns.
Our utilization as a landlord, if you will, has been over the last year at a very high levels and kept our value about notwithstanding downturns. So it’s a different dynamics in the airline and that’s one of the things we often get covered from the airline side by equity side. We are the safe haven. It’s a little bit o a different story.
So let me talk about our fleet a little bit. Our fleet is about 138 aircraft as of Q3 end, and it’s spread out to a lot of different customers. 93% of it is what I would call current generation, first in production basically. So the average age is a little bit over ten years. We tend to have a different investment philosophy than our peers. New isn’t necessarily better, it’s a price issue. Aircrafts are long-life assets, they should fly around 25 years on average. But it’s an average. If you buy the last of the line my contention is it’s not going to fly 25 years, it’s going to fly a lot less.
And so we tend to like aircraft that are in the first half of their production life because we think they will fly longer. And we think, and that’s empirically pointed out, and it will have a lower depreciation if you will. It doesn’t mean that that’s a hard rule but that’s kind of the philosophy. So our fleet is basically divided into three components. You have wide-bodies, mid-bodies like the A330 and the 777, which are doing very well because that part of the market has been growing in particular as the developing markets spend. And there hasn’t been a 787 to have an impact in terms of supply side. Same with the A350, which is a new -- the A330’s replacement.
In contrast, on the narrow body side we have a lot of those too, commodity aircraft like 757/800. But there we found better values in invest there in the first part of their production life. Not on the shining new stuff coming off line now. I think that’s overvalued and much more exposed to obsolescence from new technology.
And what also makes us different is our freight portfolio. A third of our fleet is in freighters. And that’s probably the biggest of any of the players of any size. We are the biggest player in this market other than GE. But we do it because we want to, GE does it as a portfolio management matter with their old aircraft. Freighters we like because they last longer and they are better credits. We have in the entirety of the last downturn, no default in our credit portfolio.
Longer lease-terms roughly the same kind of cash flow yields, but lower depreciation. And when you move an aircraft from one customer to another, all those idiosyncratic things that are lessee specific, go away. There is no seats. You don’t have in-flight entertainment systems. You don’t have galleys that are different. It’s a lot easier to move an aircraft from one lessee to the next.
So we like that market a lot. It’s a niche, it’s a niche that moves up and down but we think it’s an important one for us and it’s one of the things that makes us different. One last thing about this page, the average remaining lease term, five years. So we have a good long-term contract streams remaining. And in terms of what's coming up next year, we have got about 6% of our portfolio by NBV, the net book value that’s not placed yet. And we are working on that. So the revenues outlook for the next year is pretty good. From the base portfolio there is not going to be lot of movement one way or the other.
So let's talk about customers. This is available online by the way so I am not going to spend too much time on it. But you will see a growing mix of our customer base go to Asia, that’s where we are seeing most of the growth. Like most leasing companies we have a little bit over 40% in Europe. In our case, the big European exposure is all with really strong airlines like Martinair which is 100% owned by KLM, it’s basically their freight arm. It’s also Iberia. And Airbridge is the largest Russian freight carrier and very profitable as well.
So our exposure in terms of the European market is actually with pretty solid carriers. And it’s a shrinking part of the pie. Like every other leasing company you see more and more coming out of Asia and Latin America. And in our case also South Africa which is a big new customer that’s taken delivery of four of our new A330s.
This is probably the chart I am most proud off. It’s showing you in terms of the blue bars the percentage of days on lease. Think of it as like an occupancy ratio for a landlord. And despite all the bad things that happened during the global financial crisis, we had 98% to 99% occupancy throughout. We had a little bit of spell where they dropped down to 96% when our fourth biggest customer went out of business. We quickly got those airplanes back flying.
But that’s not the only measure that’s important here, I think you have to look at the red bar. The red bar is the rental yield. It’s rent over net book value of assets. And what it shows you, it’s kind of hung in there 14% throughout the global financial crisis. So those two things together are important because it means you haven’t given away your capacity. And if you think about any landlord in a business over the last three or four years that’s done this, I haven’t seen it.
Now we have done really well as an aircraft lessor but I’ll put out for the whole industry, most of the aircraft lessors have done quite well. I think we work at the upper end of the range but we have done quite well with the fleet that we have. Freighters and mid-age air aircraft etcetera. And we have done that well because we are good at it but also because aircraft to -- the portability does matter. And if you are a shipping company or if you are a rail financier, the portability may not be quite the same.
We have two manufacturers and there is a certain number of aircraft type and it may not be this particular airline that stays as your lessee but you will find somebody else. And I think and unappreciated part of our business.
So let me tell you a little bit about how we have done. The stability in our revenue is borne out by the stability of our kind of utilization. And you will see that we grew very rapidly. During our first four years we grew to $4 billion. Capital market conditions were good. Investment conditions were good. And then in late ’07 we said, it doesn’t feel good anymore let's stop. And we avoided the peak of the market for the most part. And you will see that in our average flight equipment held release. It’s kind of plateaued.
What we started doing last year was taking delivery of our order stream and growing. So a lot of the growth that we have isn’t reflected here yet. But it will show up in terms of the run rate rental revenues and I think you will see that growing towards $600 million a year for next year, assuming we don’t do anything particularly ambitious in terms of our acquisition program. And I think this is actually a very good time to be buying.
A little bit about our capital structure. I alluded to in the beginning, we have the lowest leverage of our peers. And that’s by design. So we have accessed many different markets and I think the unsecured markets are probably the most important one right now. And I will allude to this a little bit more later but there are some definite contractions going on in the tradition source of lessor financing which is European banks, for obvious reasons. And I think this is structural issue. It’s not going to get better, not in the foreseeable future.
New aircraft financing will still be available but it’s going to be a little bit more expensive. But anything else, it can be tough. The deepest pool of capital out there is the U.S. capital markets. Now we tapped into that originally for securitizations but that market is still very challenging and it’s very complicated and it takes literally a half year to a year to pull one together. And in the context of doing that, things change. So you may not find the same buying opportunities.
So when we thought about this as the financial crisis was unfolding and this is not a brand new phenomena, it’s been accelerated recently. We thought unsecured debt is the way to go. How do you do that? You have to get a credit rating. And here is where the dilemma lies. When you go to a rating agency and you say I would like a credit rating, they’ll say, well, how much do you have that the unsecured bondholders can call their own. And if you are a traditional leasing company, the answer is nothing. Because it’s always cheaper to borrow with secured debt.
So we bit the bullet last year and created and unencumbered asset base. And that unencumbered asset base is growing. It will probably be close to $800 million by the end of the year, if not more. And that unencumbered asset base is going to throw off annually close to $120 million of rentals. And that’s a bit number. That can usually service the debt and some other things. And I think you might see more of that coming from us.
Unsecured debt is also liberating. You can buy whatever you like. And so we are holding ourselves from a capital structure perspective that is sort of a 70% debt to total cap limit. And I think it’s a good discipline. And you will see our unencumbered asset base grow. And that’s what makes us different.
In terms of our debt structure, there is little more granularity here. We have a good mix of assets, a good mix of debt sources, rather. And the one specific thing I will bring to your attention is that back in September when interest rates were at their all, seemingly all time lows, we have put a new hedge in place for securitization where the hedge is expiring. And we locked in for the next five years beginning in June, 1.5% financing for $900 million of debt. And so that’s a pretty attractive part of our capital structure now.
So going forward, where do we see the opportunities. I think it’s like -- for the audience here you’re investors and the price matters or the yield matters. And so we like shiny, we like shiny at price though. Where we see value today is in three different elements and part of this is sort of differentiated view of the market and part of it is where we think we have a competitive advantage. In the first category, high-yield wide bodies. I will use as an example 777-300ERs. That’s replacing the 747 market. It’s twin-engine aircraft. It has no viable competitor from Airbus and probably not until at least the end of the decade. And by Boeing decision to re-engine their narrow body they basically put to develop their program for the 777, the replacement for that back to the back-end of the decade. If there is any aircraft built today that has a chance of being built at the end of the decade it’s that.
Teething program issues with the 787 and production and development issues with A350 means the 330 also have a good life too. We think there is a better residual value profile and a good customer base potential and good financing availability for here, and there is lot of competition. The new narrow bodies are over-competed and I think there is lot of downside risk from the production levels they have today.
However, there is good value in the first part of their production line for the new technology aircraft. A ten year old 737-800 still has a very good lease demand and the payback to part-out if you will, part-out value being the exit value, sort of a liquidation value if you will, at the end of its life is pretty short. So I think my downside risk there is quite low. And because there is so little bank financing the competition is very very little. When we shop, it’s few of small mom and pop shops. None of the big established lessors play here. So we found terrific value there. I see unlevered yields there in the low to mid-teens. And I think of that as a great market.
And then finally the freight market. Freight market is kind of an amalgam of things. At the beginning of the year when there was a shortage of capacity, we did a play that’s going to capitalize us on our expertise so we bought 747 passenger aircraft, turned them into freighters and leased them out. That’s a pretty complicated process. And there’s only handful of lessors that can do that. Now as the freight markets dip down, the play I think is more in the sale leaseback mode and we are looking at that as well.
So I will open up to Q&A but I think the main highlights here is that they are really good long-term fundamentals. They are opportunities that are borne out of the business cycle which we have taken advantage of. We are in a position to do that because first of all our portfolio is in good shape and it generates very strong cash flow. Number two, we have had a good track record in demonstrating that through downturns and we have the capital structure and the access to different market sources that let us play there in a much more flexible way than most of our peers.
So now I’ll open it up to Q&A.
Clearly there’s been some issues in the Indian market. Could you talk a little bit about how you see that market playing out over the next couple of years and what type of opportunities if any, are going to be coming out of the Indian market.?
Indian market is one of the fastest growing markets in the world. And it ties with the growth in the economy. The problem with the Indian market is twofold. One is you have infrastructure limitations and in contrast to China. China has done a terrific job in the infrastructure. If you phone in China and you go to any of the airports there, it’s unbelievable, it’s first world. It’s actually puts us to shame. They have invested in it. The Indians have not yet. It’s in process. So there is some physical limitations. Practically speaking they limit how fast the market can grow.
But the other part there is a very messed up market from a competitive standpoint because you have one broken state owned carrier that is chronically loss making and distorting all the pricing, that’s Air India. And Air India was bad but then they merged it with the other state owned airline called Indian Airways and they made even worse. And so that’s a handicap for anybody who is playing in that market.
There is one big player there that’s overleveraged to the extreme and has never made a profit and that’s a problem and we took an aircraft out of that airline two years ago thinking they weren’t long for there. They actually survived and surprise me but I think they also don’t add to healthiness of the market dynamics. There are some healthy and low run airlines there or they could have been healthier financially. I think there are some winners that will to a time. And our exposure to India at this moment extremely underweighted. It’s two aircraft, two 737s that mature -- leases expire in 2013 or so.
So it’s very very low out of 138 aircraft portfolio. But it’s a market that we are fascinated by. You have two pick your winners there from an airline perspective. And you have to structure your deals and get into them at levels where you feel safe. Because it’s going to be a little bit unbalanced for a while. Yes?
I like the E-Jet. The main thing a lessor has to look at, more so than an operator is the breadth of the operator base in this geographical dispersion. Because when the lease is over we need to find another home. And the operator might take a different horizon in terms of its ownership. The issue with the regional jet market is that historically it’s been a very North American centric market. The 50-seaters are almost entirely North American. There is nowhere to go once that comes out.
Where the E-Jets really come into its own is there are nearly a thousand aircraft on order that are flying around. Which is a pretty big operator base. 60 customers or so around the world. And they have done it. They have actually made this kind of a commodity aircraft. The thing about it that I have kind of warmed up to it, is in the mainline aircraft you’ve got two producers. So the fundability is very high.
With the regional market you have got Canadians and the existing production aircraft. And in the C Series you have got the Russians, the Chinese and the Japanese. The risk there was that you have a market that is not as disciplined or fundable as the mainline. But when you actually sit and look at it, the Chinese, the ARJ, the Sukhoi Superjet, look like very home market limited airline aircraft. The C Series has actually got potential but it’s a bigger aircraft and when you look at the 100 seat variant, it’s quite heavy. Not as effective as it could be versus the E-190.
The existing technology Canadian aircraft are not competitive. And the Japanese aircraft haven’t mustered a customer base yet. So it actually looks pretty interesting. And we don’t have anything in our portfolio yet but we consider it absolutely. Yes?
Yesterday we heard from Boeing and Airbus about the basket of order book and potential ramping of production. Can you kind of just talk a little bit about the effects of increasing their production levels and just what all those deliveries will kind of have on your business?
The production levels of the Boeing and Airbus narrow-bodies are increasing. If you go back a couple of years, each manufacturer is making 30-32 aircraft a month. The Boeing plan is for more modest growth. They are planning to get to about 40 within a year or two. That’s a pretty big increase. 25% increase over that timeframe. The Airbus plan is to go into the high 40s, which is huge. And they are further along. Boeing just got to 35 from 31.5 just within the last month of two. Airbus has been ramping up more gradually.
These are long processes. It takes a long time to ramp up a supply chain to get to this point. It’s very hard to ramp it down. And it’s a worry. The Boeing process and the Airbus process are obviously very different in terms of endpoints, in terms of production levels. And you can see it in the rentals. Rentals for Airbus aircraft, if I look at the 320 and I look at rentals today versus a year ago, they are not higher they are lower. And the economic recovery, it’s still a recovery but it’s weak one. But you shouldn’t see that in a recovering market.
The Boeing aircraft, the 737-800 is actually higher. And that’s because the supply is more to up. And the direction is not good. So that’s one of the reasons to augment the discussion I had about the, where we see value is why I am more concerned about downside on brand new narrow-bodies. Because I don’t think that with a 50% higher production rate, the chances of you as an owner getting the rentals that you are hoping for are quite as good as they should be.
And I will say, well we are sold out. But here’s the other part of it. Export credit agencies have played a very big part of our market and I think the role that they play is an important one in terms of providing stability. Constancy of financing. But they can't get to the point where they are subsidizing too high of a production level. That was an issue with the 50-seat aircraft. In 2009, the ECA stepped up their role and they accounted for about a third, maybe 30% of aircraft that were delivered new. That’s versus 15% historically. Okay, that was a global financial crisis, that’s probably appropriate.
2010, the same level. This year, the same level. So the recovery never got borne out in their role. And looking into 2012, my opinion is it’s going to be higher rather than lower. And what's accounting for the difference, who are they taking market share away from? Banks. So the banks here was historically much higher, it was more like 35% back in the pre-crisis days. And I think in 2010 it was in the low-20s. So when you read the headlines and you think about what it means for our French bank to do a long-term U.S. dollar funding and the difficulties of it, it’s bearing out in what's going to happen now and in next year.
And to make matters worse, a number of the big European banks are chopping their aircraft portfolios. It’s this pretty high quality stuff. But it’s not a deep market and it’s going to cannibalize to some degree. I don’t know how much but to some degree it’s going to cannibalize the capacity of development of new deals. And there are literally billion of dollars of portfolios floating around right now. So I come to our competitive advantage in accessing other sources of capital. Now, I don’t think that airlines like Cathay Pacific or Singapore Airlines, people of that strength and of that name brand nature will have a hard time. Maybe they pay a little bit more for financing costs but I think lessors and I think second tier airlines will have a much tougher time. Because there is only so much that can go around.
And so I am very worried about the production rates for the narrow-bodies; wide-bodies, I think there is enough. And to say that there is an order stream is little bit of disingenuous because the order stream is propped up by the ECAs.
You put up a chart showing the utilization rate rebounded very quickly after the last downturn. Can you talk about how you are able to do that so fast? Particularly when you are in a downturn and people don’t want to take aircraft and how that process works?
Yeah, it take a little bit of planning. And it’s hard to say planning for a default but it’s rarely the case of an airline wakes up one day and says oh, shoot I have no money or I have to declare bankruptcy. It’s a long slow process. And, yeah, if lessee is American airlines for example, a lot of people have been talking about American airlines and their competitive decision, their cost issues. They did have liquidity. But we chart liquidity, we are one of the most rigorous leasing companies from a credit monitoring perspective.
We meet our customers once a year in three different ways. One is from a credit perspective. One is from a business perspective, how are things going, how is your market. And the other is from a technical perspective. Every time there is a heavy maintenance event, whether it’s stoppage for an aircraft or stoppage for an engine, we either have our representative there or we have one of our own team there. And you will see, if the aircraft isn’t being utilized that’s a good signal that there is some problem going on operationally which is a financial problem. And we usually have a pretty early warning that there is a problem.
Now sometimes, and I will give you an example where we didn’t get it right. Egypt. We had a customer in Egypt that had four aircraft and they were in the leisure business. And the leisure market there had gotten pretty competitive. So we have been having some conversations, so when we took one of the aircraft out in January before Tahrir Square. But then Tahrir Square happened and nobody wanted to be a tourist in Egypt anymore. And we concluded pretty quickly that that wasn’t going to change for a really long time. And I don’t think the tourist market in Egypt is going to recover for years.
So we had an unexpected bankruptcy in that situation. We had to move quickly. The key to success is planning those. If have their record scanned, if you have got some soft marketing going on, if you have taken steps with the airline to kind of prepare for a situation, then you will be all right. And the Indian example that I mentioned where we have kind of proactively said to them, listen it’s not working out, you’ve got too many airplanes let’s take some out. It was painful. The rental that we got on the next lease was lower but I can sleep at night.
And so, I ran the restructuring group at GECAS before I took this job. So I was responsible for the U.S. bankruptcies during the last round. And the biggest takeaway is you want to be the first guy out and not the last one. Because then you are dealing with a whole flood of airplanes and you are dealing with an overstressed technical staff that can't help you in time. And so we are more proactive about it.
Great. And then just, Ron, you mentioned the fact that you think probably now is a good time to start being a buyer rather than a seller. And you mentioned this financial strength that’s inside the company on secured aircraft. At what point do you think we could maybe see aircrafts or get maybe a little more aggressive in terms of going out and acquiring assets. Is that something that we could see in the first half of 2012 or do you think it’s something where we kind of wait and see how things play out and then maybe in the back half or even a year out? I mean, I guess in thinking about it, clearly you are concerned and that you think there might be better opportunities further down the road.
Very good question. We saw some opportunities even in the third and fourth quarter. So as we said during our last earnings call, we put about $300 million to work during that timeframe. It’s less than we expected but here is one of the things that makes us different also, we don’t have any aircraft coming off order streams expect for one in spring of next year. We don’t have any debt maturities until 2015. The portfolio is effectively mostly leased out for throughout next year. And there is a five-year average remaining lease term.
So whatever we do is voluntary. We would want to do it. If we don’t find the right opportunity, and when I say the right opportunity, you have to combine the investment opportunity and the yields that you can expect versus the yields you will have to pay on our debt, on your financing. There has to be a good spread. So if I look at the unsecured market for example, the unsecured market has been all over the place. Today’s it’s a reasonably good scenario versus a month ago. But for it’s very much of a spread relationship. So if we see a good spread, you will see us do a lot. If we don’t, you won't.
But I think there will be some, for all the reasons I said before there will be some good investment opportunities. And I think given the way we have structured our capital structure and I will just elaborate on that for a second. Where there is a low debt to total cap, where there is growing unencumbered asset base, we are going to probably see a growth in our unsecured to total debt ratio. Those are all kind of bondholder friendly profiles. And I do think that there will be a lot coming in the first and second quarter. And I think unsecured bonds probably will (inaudible).
Great. If there is no other questions. One in the back?
One in the back.
We are just curious if any of your customers have in their contracts language that’s permits the use of PMA parts on the aircraft they are flying. And if not, the potential customer drew a line in the sentence that I absolutely insist we want to use them, we just want to know if you are allowing it?
That’s a good question. It’s coming up more often. I am not sure if everybody is familiar with PMA parts. PMA parts are basically parts that are not produced by the OEM, spare parts. And they often come up in the context of engines. That’s where a lot of the spare parts -- you know it’s a moving piece of the aircraft really. PMA parts are -- I came from GE, so GE is an OEM and PMA parts are evil. And if you look at the business models for them, you spend a lot of money to develop, it’s like the razor blade model. You spend a lot of money to develop the product, you don’t sell it for a lot and you make your money on spare parts. So PMA parts are kind of aimed at the jugular of the GEs and Rolls and Pratts of the world.
And so there are lot of -- there is some truth and there is some myth. And how to discern between the two is one of the challenges. Some airlines like Lufthansa or Delta, which are fine airlines, they save a lot of money by using PMA parts. And that’s part of the deal. If you are going to do a deal with those guys you are going to have to live with it. And the implications for lessor is, can you re-lease the aircraft if the aircraft has PMA parts. Or if you are looking at an older aircraft can you break it apart and get a value for those parts.
And here is what the market is saying. And I think the market is willing to accept PMA parts in the engines to some degree in the fan, not in the hot section of the engine. That’s where the concerns are the most extreme. We have had a few aircraft that are end of life aircraft that we sold and basically, these were actually United aircraft with lot of PMA parts. The engines were worth half of what they would have been otherwise. So it is something we factor in. It’s not like intrinsically bad if it’s something you have to factor in your price. And I think the appetite that we and other lessors have from PMA parts probably grows as the aircraft ages because we probably don’t want to invest as much in new OEM parts as you get towards the end of life.
But it’s an issue if you are going to do business with certain customers because they are just going to insist on it. We have tried to stay away from it, not because the PMA parts are bad or good but because it’s a re-marketing issue. Hope that answers your question.