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Executives

Frank Constantinople – Senior Vice President, Investor Relations

Ron Wainshal – Chief Executive Officer

Mike Inglese – Chief Financial Officer

Analysts

Gary Liebowitz – Wells Fargo

Andrew Light – Citi

Josh Pinkerton – Goldman Sachsg

Anthony Sibilia – Credit Suisse

Isaac Husseini – Barclays Capital

Halane Becker – Dahlman Rose

John Godyn – Morgan Stanley

Arren Cyganovich – Evercore

Glenn Engel – Bank of America-Merrill Lynch

Mark Streeter – JPMorgan

Aircastle LTD (AYR) Q1 2012 Results Earnings Call May 3, 2012 10:00 AM ET

Operator

Please standby, we are about to begin. Good day. And welcome to the Q1 2012 Aircastle Limited Earnings Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Frank Constantinople, Senior Vice President of Investor Relations. Please go ahead, sir.

Frank Constantinople

Thank you, Kelly. Good morning, everyone. I’m Frank Constantinople, Senior Vice President of Investor Relations, and I’d like to welcome all of you to Aircastle Limited’s first quarter 2012 earnings call.

With me today are Ron Wainshal, Aircastle’s Chief Executive Officer; and Mike Inglese, our CFO.

We will begin the presentation shortly but I would like to mention that the call is being recorded and the replay number is 888-203-1112 that’s from within the United States and Canada, from outside of the U.S. and Canada the number is 719-457-0820. The replay passcode for this call is 4711325. This call will also be available via webcast on our website at www.aircastle.com along with the earnings press release and an accompanying Powerpoint presentation.

I would like to point out that statements today, which are not historical facts, may be deemed forward-looking statements. Actual results may differ materially from these estimates or expectations expressed in those statements and certain facts that could cause actual results to differ materially from Aircastle Limited’s expectations are detailed in our SEC filings which can also be found on our website. I’ll direct you to Aircastle Limited’s earnings release for the full forward-looking statement legend.

And I’ll now turn the call over to Ron.

Ron Wainshal

Thanks Frank. Hello and thanks for joining us today. I’d like to start by reviewing our accomplishments for the first quarter of 2012. I’ll then discuss our current view of the overall market environment and provide an update on our plans, and in doing so amplifying some of observations we made during our Investor Day meeting in mid April. Mike will then review our financial results and capital structure. We’ll then open the call up for questions.

We are off to a very good start in 2012. Our revenues are up, thanks to the billion dollars aircraft acquisitions we made last year and due to the consistently strong portfolio performance we’ve been achieving.

Moreover, the present market is attracted for aircraft acquisitions as demand for lease financing grows from airlines. We are taking advantage of these favorable conditions by pursuing and capitalizing on accretive investment opportunities.

We’ve proven our ability to access capital through the unsecured debt market and believe this is strategically significant given structural change is taking in the traditional bank sector for aircraft financing.

Last month, we issued a $100 million unsecured debt and we paid our bank comp facility. This provides important benefit to Aircastle. It enhances our capital structure, extensive debt maturity profile, increases our unencumbered assets base substantially, frees up cash flow for additional high return investments and provides additional growth capital. Mike will discuss this further during his remarks.

In short, with significant unrestricted cash balance today, good operating cash flow going forward, no debt maturities for several years and no major remaining capital commitments, we are excited about Aircastle’s position to continue executing on our strategy of discipline, return oriented growth.

Now let’s turn to our performance during the first quarter of 2012. Regarding our topline results, total revenue grew to $165 million, with lease rental revenue accounting for around $152 million of that. Lease rental revenue is up 8% due to our investments in 2011, more than offsetting the revenue loss from last year’s profitable asset sales.

Net income was $32.6 million or $0.45 per diluted common share, while adjusted net income was $32.4 million. At the end of the first quarter, our fleet stood at 145 aircraft, which are leased to 64 customers in 34 countries. The average remaining lease term was 4.7 years, providing the company with the diverse and long lasting contractual revenue base.

Portfolio performance during Q1 was solid with fleet utilization coming in at 99%, while rental yield stayed at 14%. As evidence by these results, we continue to keep our fleet well deployed as we done throughout the business cycle and despite geopolitical development such as the Arab Spring last year. In fact, managing through customers issues is something all leasing companies must address and do well.

Over the past several weeks we reacted quickly to the bankruptcy filling with World Airways which leased two 747-400 freighters from us. We agreed with the World to terminate lease for one aircraft and quickly sign new lease agreement with another operator. We also re-negotiate the lease for the other aircraft which World is continuing to operate. Our team did a terrific job of managing through this situation and keeping plains flying.

This morning one of our customers, Cimber Sterling, a small airline in Denmark filed for bankruptcy. We had four 737-700 on lease there, representing less than 2% of the net book value of our fleet, one aircraft had already completed it return process and another was schedule to come off lease later this quarter. Last unit is schedule to come off lease in Q1 next year.

Cimber has been operating in a very difficult market environment for some time and it’s been on our watchlist, so the overdue payment balance is quite low and we’ve been marketing these aircraft actively for sometime. I’m quite optimistic they will be able to redeploy the aircraft quickly. Mike will cover more details in his remarks.

We are also making progress placing the aircraft, perhaps schedules lease expirations this year and next. Over the past several weeks we signed lease agreement to extent leases on A319 due to expire early this year and 767-300ER coming off lease next year. We also agree to sell our Boeing 757 due to come off lease later in the year to the current lessees.

In addition to our four aircraft coming out of Sterling that leases with eight schedule lease expiration to place this year, accounting for approximately 4% of our portfolios net book value.

I’d now like to address the market environment. Firstly, air traffic levels remain surprisingly resilient despite slowing economic growth rates around the world. International Air Transport Association results for March show that for the first three months of 2012 passenger traffic grew by 7.4%, while airfreight declined slightly above 0.7% versus the Q1 2011.

On the passenger side, the results look little better than they reflect given the effect of last year’s traffic level of Arab Spring and the earthquake and tsunami in Japan. Nonetheless, the growth rate and demand is higher than 5.3% increase in supply, driving up load factor, in short, these are good results.

As we discussed during our Investor Day meeting, we believe the freight market may have hit bottom a few months ago, and the most recent IATA results are consistent with this view.

During the month of March, we saw slight increase in traffic versus last year’s volumes and even larger sequential increase versus February results. While we are still a long way from where the market was in late 2010, there also appears to be a more positive sentiment among freight market participants.

While this statistics are positive, rising fuel prices are continuing to dampen airline profitability along with weak economic conditions in certain parts of the world. We see this fuel price affect reflected in lease demand for older technology aircraft, as airlines accelerate to shift towards current generation lift. We also see this along with capital scarcity translating into growing demand for leasing.

However, as a general matter, lease demand for most aircraft is relatively flat relative to year ago, so there are very big differences across aircraft types. We see two main forces that for the moment are getting in the way of rental increases.

Firstly, there is business confidence which remains weak, making airlines reluctant to add capacity, there is upside in rental demand to the extent that these improve, so we are seeing some signs of that. Secondly, there are supply pressures on certain aircraft models, be it from increasing production levels or due to supply rising from airline restructuring.

Turning to financial environment, this is a key factor driving aircraft prices and our growth strategy. The global financial prices led to a structural shift in aircraft financing as bank slowdown or stop lending for aircraft acquisitions.

Increasing deliveries combine with bank market contraction means the ECA financing will become even more critically important, in this respect there are some political headwind, but in any case Export Credit Agency financing is going to get lot more expensive next year once the rule change and we anticipate this playing to our benefit.

In our view, U.S. capital markets are becoming increasingly important sources funding and we anticipate more leasing companies and airlines seeking credit rating agents, the credit rating to obtain assets.

However, our sourcing equipment, efficient financing in this market is challenging and we believe our track record and unsecured credit ratings are significant competitive advantage as evidence by recent bond deal.

I’d now like to make a few comments about how we are doing on our business plan. In addition to effecting a meaningful improvement to our capital structures to the refinancing or bank term loan, our recent bond deal provide us with growth capital to take advantage of the favorable investment environment.

We are executing on that with a discipline return oriented approach that involve investing selectively in airplanes at attractive prices with cost effective financing. We are seeing increasing deal flow with investment returns that are consistent with or better than the expectations we had the beginning of the year.

So far this year, we’ve closed or have commitments to acquire $4 million of aircraft most of which we expect to close during the first half of the year. We anticipate these investments will further enhance the company’s long-term earnings power.

These new acquisitions include three transactions which closed during the first at cost of approximately $80 million. In early April, we delivered our last new order A330 to Virgin Australia marking the end of our successful Airbus new order program.

At this point, we have no more major capital commitments outstanding, leaving us free to pursue the attractive opportunities we’ve seen today’s market, including recent commitments to acquire about $225 million in aircraft.

Having said that, we believe we can achieve a total of $700 million or more in new investments for the full year, given our robust and growing deal pipeline. So far the majority of the new acquisitions we made this involve aircraft leased to Asia-Pacific airlines, reflecting the growing opportunity set in this part of the world.

Our new aircraft purchases are generally falling within the three investment categories we’ve been targeting, narrow wide-bodies, mid-age current generation narrow bodies and freighters. However, we are seeing some good and interesting values in mid-age wide bodies, and also in the Embraer E-Jet family and exploring opportunities there too.

I’d like to conclude my remarks with the few bigger picture observations. We remain very bullish about the long-term outlook for the aircraft leasing sector as it continues to increase it share of growing industry.

We are well-positioned to take advantage of the attractive environment for aircraft acquisitions, particularly given our ability to source of financing effectively through a variety of channels including the critically important U.S. capital markets.

We have strong portfolio of assets, a profitable business mix and considerable scalability in our platform. Above all, we remain absolutely focused on creating value for shareholders, be it with accretive investments, a healthy dividend payout and where appropriate to repurchasing our own securities.

With that, I’ll turn it over to Mike.

Mike Inglese

Thanks Ron. We began 2012 with the solid first quarter and also made significant progress in transforming the overall capital structure of the business with our recent $800 million senior note issuance.

For the first quarter of 2012 lease rental revenue was $152.2 million, up $11.1 million or 8% from the prior year’s quarter, due primarily to the net impact of aircraft acquisitions net of our asset sales last year. Our portfolio yield and revenue utilization for the quarter was once again strong came in at about 14% and 99%, respectively.

Total revenues for the first quarter were $164.9 million, an increase of $7 million from the prior year, driven by the higher lease rental revenue of $11.1 million and lower amortization net lease discount of $1.5 million, resulting from lower than expected incentives paid out to our lessees.

These drivers are partially offset by lower maintenance revenues of $4.2 million, reflecting the higher level of unscheduled transitions in the first quarter of 2011 of $13 million versus $9.9 million in the current period. As a reminder, the Q1 2011 results included significant unscheduled transition activity resulting from the Arab Spring.

EBITDA for the first quarter was $15.6 million, down modestly from the first quarter of 2011, as higher lease rental revenue of $11.1 million was offset by lower maintenance and other revenues of $5.6 million and $9.5 million of lower gains from the sale of aircraft during the first quarter compared to the prior year.

During the first quarter of 2011 we sold four aircraft and realized a pre-tax gain of $9.7 million versus very modest gain from one aircraft sale in the first quarter of 2012.

Adjusted net income for the first quarter was $32.4 million or $0.45 per diluted share, compared to $44.5 million or $0.56 per diluted share in the first quarter of 2011. The year-over-year decrease of $12 million primarily reflects higher total revenues of $7 million, offset by higher depreciation of $4.9 million, higher adjusted interest expense of $4.4 million and lower gain on sales aircraft of $9.5 million compared to the prior period.

As a reminder, during our Investor Day in early April we mentioned, to be more consistent with our peers and beginning with the first quarter of 2012, we change our definition of adjusted net income.

Adjusted net income will no long exclude gains on sales and losses on sales of assets and will add back stock comp and hedge loss amortization, the charge related to the repayment of our term financing number one beginning in the second quarter of this year. Comparisons with Q1 are shown in today’s press release, as well as Q1 ’12 earnings PowerPoint presentation posted on our website.

Turning back to the specific line items in the P&L for the quarter, interest net was $49 million for the first quarter, an increase of $3.4 million over the prior year, primarily due to higher average debt outstanding of $2.9 billion versus average debt of $2.7 billion in the first quarter of 2011.

Total SG&A for Q1 2012 was $13.2 million, up about $700,000 over the first quarter of 2011 as expected. This resulted from higher personnel expenses due to the departure of earlier of our Chief Investment Officer and higher professional fees, partially offset by lower non-cash share based compensation expense of about $700,000 compared to the prior year

We expect full year SG&A of about $47 million to $48 million, consistent with recent annual totals.

Depreciation expense in the first quarter was $64.5 million, which was $4.9 million higher than the prior year, primarily due to the net aircraft assets we added to the portfolio on a year-over-year basis.

The monthly depreciation run rate at the end of the quarter was about $22 million. Gain on the sale of flight equipment was lower by $9.5 million as I mentioned previously, we sold four aircrafts for a $9.7 million gain in Q1 of 2011.

As we mentioned in Investor Day and our fourth quarter year-end call, we expect gains from asset sales to be more modest in 2012 given the current environment versus 2011, where on a full-year basis we opportunistically sold 13 aircraft and generated $39 million in gains on sale.

In the first quarter of 2012, the income tax provision represented an effective rate of approximately 8.2% and reflects the revenue and income sourcing mix from the portfolio during the year. For 2012, we expect the full-year effective tax rate to be in the 7% to 8% range, up modestly from what we suggested at year end of 6% to 7%, reflecting the impact of additional hedge loss amortization, resulting from our Term Financing No. 1.

Looking at our acquisition activities, thus far in 2012 we completed the acquisition of three aircrafts for approximately $125 million. This includes delivery of our final A330 that was leased to Virgin Australia in early April. We have commitments to add approximately $225 million, which we expect to come on line in Q2 and early part of Q3.

At the end of the first quarter, our annualized lease rental run rate from the portfolio was approximately $598 million, of which $105 million was being generating from 29 aircraft that we own outright without any financing related encumbrances.

Pro forma for the $800 million senior notes issuance and the repayment of Term Financing No. 1, the unencumbered run rate from those unencumbered aircraft would be approximately $251 million.

Turning to the capital structure, we ended the quarter with $257 million of unrestricted operating cash, $185 million of restricted cash and $59 million to $60 million of availability under our unsecured revolving credit facility.

We had about $2.9 billion of secured and unsecured borrowings with net debt outstanding of about $2.7 billion, which is about 61% of the net book value of our flight equipment.

Our net debt-to-equity ratio excluding the mark-to-market on our interest rate derivative is approximately 1.7 to 1 at quarter end, and we remain in compliance with all applicable covenants in each of our financings.

Our goal continues to be to maintain a relatively conservative capital structure of about 2 to 1 with a mix of secured and unsecured debt, while we are targeting a greater proportion of unsecured debt, moving forward, we continue to believe that this blended approach towards capital management increases our financial flexibility and gives us the ability to invest opportunistically while providing for a balance maturity profile. We also expect our increased use of unsecured debt to enhance our overall capital structure and strengthen the company’s credit profile over time.

As we discussed at Investor Day, in early April, we raised $800 million of unsecured debt at a blended rate of about 7.08%. This represents the [spread] of time that we have accessed the unsecured market in the past two years. We used $583 million of the proceeds in this offering to repay our term financing number one, which is scheduled to enter into a cash strap mode in May of 2013 and having original maturity in May of 2015.

In connection with the refinancing, we incurred and hedged settlement charge of approximately $51 million, and as we’ve explained, we were able to fund this settlement by releasing approximately $70 million of restricted cash related to this term financing structure. This refinancing not only enabled us to extend the 2015 maturity or to 2017 and 2020, but also freeze up investable cash flow that would have otherwise gone to debt repayment and an increase of the encumbered asset pool from approximately $1 billion to about $1.7 billion on a pro forma basis.

I will also remind you that we are forward starting interest rate swap on Securitization No. 2 becomes effective in June of this year and we’ll reduce the cash pay interest rate by approximately 400 basis points, thus reducing significantly the interest expense, beginning in June of this year. We expect the new swap to result in a $30 plus million reduction in interest expense on this facility during the first 12 months.

We also paid a first quarter dividend and declared a second quarter dividend of $0.15 per share. And finally with respect to Q2, we are expecting to filing elements, which is taken into account today’s news on the Cimber bankruptcy filing.

We expect lease rental revenues to come in at about $151 million to $153 million, maintenance revenues are expected to be between $10 million to $12 million. Amortization of net lease discounts premium and lease incentives is expected to be about zero for the quarter, reflecting the reversal of accounts with Cimber.

We expect total SG&A to be in the neighborhood of $12 million and our total GAAP interest expense is expected to range between $65 million and $67 million for the second quarter. This amount reflects the impact of our recent repayment of term loan no. 1, including about $3 million of one-time write-offs of deferred financing fees and about $4.5 million related to the amortization of the hedge loss.

In conclusion, the business continues to perform well and we remained in the strong position to take advantage of attractive investment opportunities and further enhance our profitability.

Consistent with our past success, we will also continue to evaluate additional opportunities to enhance long-term value for the shareholders and with that operator, we are happy to open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we’ll go ahead and take our first question from Gary Liebowitz with Wells Fargo.

Gary Liebowitz – Wells Fargo

Thank you, operator and good morning gentlemen.

Ron Wainshal

Hi, Gary.

Gary Liebowitz – Wells Fargo

Ron, it doesn’t sound like a lot has changed since the Investor Day other than some of your interest in assets like E190 and maybe some mid-life wide-bodies. Can you talk about maybe more detail what you see in those markets? It seems like a lot of lessors are targeting the E-Jets, maybe just your thoughts there.

Ron Wainshal

We’ve been looking at the E-Jets for sometime, but the retail market is not one that we’ve been drawn to historically, but Cimber has done a very nice job of developing a very big global customer base, which is an essential requirement in our view for investing in airplanes because you need to be able to have choices when leases expire, and as you look at the production levels, the growth from demand, the lack of really viable competitive alternatives, it’s becoming more of an attractive operating lease asset. So that’s not a brand new change in view. It is something that we are seeing some interesting opportunities arising in.

As far as the mid-age wide bodies, this is an area we’ve also played in over the last couple of years and I see they are being some really interesting kind of lease to part of type of layers where there is a lot of upside, let’s say part out. That sort of an underwriting viewpoint but widebody sectors have said the four is one where the apply pressures are lesser. There have been very significant delays in the 787 program. There is delays in the A350 program, and there is still great (inaudible), so we see some opportunity there.

Gary Liebowitz – Wells Fargo

Okay. And also, on your cash flow statement, there is a $43 million purchase of debt investment (inaudible) also if that is.

Ron Wainshal

Yeah. We purchased a secured loan from some European banks that were quite anxious to sell for other reasons. The aircraft is securing this loan at a 777-200 yard. We are getting return on this that’s consistent with returns we are seeing on leased aircraft. It’s a short-term loan, it expires next year. It was this opportunity that came up that kind of tied into our core competencies and at the end of that term, we’d be very happy to own the aircraft at that loan balance, although I don’t think that’s going to happen.

Gary Liebowitz – Wells Fargo

All right. Thank you very much.

Ron Wainshal

Sure.

Operator

And we’ll move next to Andrew Light with Citi.

Andrew Light – Citi

Hi.

Ron Wainshal

Hi, Andrew.

Andrew Light – Citi

On the (inaudible) side, they said they were also targeting mid-age market. Are you seeing increasing competition despite maybe a lack of historical funding for mid-age aircraft, are you seeing competition beginning to pickup at all?

Ron Wainshal

Yeah. In fact, I’m seeing more deal flow and that’s kind of my comments about the returns that we are seeing. I think a number of leasing companies that are looking at the public markets at the capital markets in the U.S. is increasing that it all takes time and you really need to get that kind of an access to play effectively in that type of an asset sector given the lack of bank financing is available. It’s going to happen over time if they used corporate excess returns that could be the way. I think it’s going to take a little while.

Andrew Light – Citi

So you think you might be in a bit of sweet spot between right now and the end of the year to maximize opportunities.

Ron Wainshal

Yes.

Andrew Light – Citi

And then, Mike, you gave in the guidance those line items, what about maintenance costs in this quarter, in the second quarter, particularly associated with maybe really seeing more of the world aircraft on the (inaudible) planes and also the Cimber plains?

Mike Inglese

With Cimber, I think it’s really early to tell I think I’d point also that one of those leases expired at the end of the first quarter and the second was scheduled to come back next year. So they are thinking about what we would be doing in terms of maintenance expanse with those aircrafts, is kind of already embedded in our thoughts about our business plans for the year.

Ron Wainshal

I think you mean next quarter.

Mike Inglese

In Q2 and in the balance of the year and then the other two from Cimber were scheduled to come out in early 2013, as we mentioned, so there maybe some shifting forward of some of those transition expenses into 2012 from 2013.

With respect to the world aircraft, there will be some additional maintenance costs. I would think, directionally is probably up a little bit from where we are in the first quarter where we were about $2.8 million, so maybe we are in the $3 million to $4 million range I think in Q2 with a little bit of a reservation about Cimber because it’s a little early there, but I don’t see a significant pickup, as a result of either of those things.

Ron Wainshal

Yeah. Andrew, we’ve been anticipating or anticipating stronger. But we are not surprised by the filing at Cimber. They’ve been on the watch list and in general, they’ve done a pretty good, taking care of the aircraft and we’ve been monitoring that pretty carefully. We’ve been also out marketing this aircraft pretty actively for sometime now, and as I said during my prepared remarks, I expect we will be getting those aircraft back on this pretty quickly.

Biggest issue with those is always is just balancing the rental opportunity with the redeployment cost opportunities with a bit of trade-off there. But these are pretty standardly configured aircrafts. So, I don’t anticipate they are being, at least from a configuration perspective anything substantial.

Andrew Light – Citi

Okay. Thank you very much, guys.

Ron Wainshal

Thanks, Andrew.

Operator

And we’ll go next to Josh Pinkerton with Goldman Sachs.

Josh Pinkerton – Goldman Sachs

Hey, guys. Thanks for taking my call. First question just related to some of the stuff going on with Cimber. Are you seeing any other weakness from any of your other major customers, particularly in Europe?

Ron Wainshal

No. The big customers that we have in Europe were all without considering pretty solid. We do have, I think that the weak points in that market are kind of described as on the (inaudible) Europe. We have a few customers with one or two kind of older lower ticket aircraft where we are little bit more vigilant, but nothing of any de-consequence. I think Europe is a weak point, notwithstanding what I call surprisingly strong traffic results out of the (inaudible) marked results. But the exposure we have in Europe is pretty spread out over many, many less fees and again, most of the top customers are pretty strong.

Josh Pinkerton – Goldman Sachs

Great. And then going back to the loan purchase that you guys made this quarter, are you seeing any other opportunities from banks, in particular European banks and is that something you consider doing in the future.

Ron Wainshal

I don’t think of it is a big source of deal flows, Josh. We did this back in our early years and not so much with the bank market that we are buying AA (inaudible) securities that were distressed. The sort of skill set for investing in these types of instruments is pretty complimentary to what we do. Most of what’s for sale doesn’t really suit us, it’s lower returns stuff that doesn’t really play to our strength but this was a short-term loan in our aircraft, we like an awful lot and we’d be more than pleased to own it if (inaudible) showed up. I think those are few and par between but the market in Europe – the bank market in Europe is still pretty dodgy and we are keeping our eyes open.

Josh Pinkerton – Goldman Sachs

That’s great. Thanks. That’s it from me.

Ron Wainshal

Thanks, Josh.

Operator

And we’ll go next to Gregory Lewis with Credit Suisse.

Anthony Sibilia – Credit Suisse

Good morning, everyone. It’s actually Anthony Sibilia for Greg this morning. I just had a quick question. You, kind of, mentioned the freighter market, you guys see it kind of bottoming out. Is it now the kind of time where you guys could start maybe investing more money in freighter assets and especially in freighter conversions where you kind of, it might take a while before you can actually start leasing them?

Ron Wainshal

Well, I think you’ll see us doing more in the way of freight -- freighter asset investment. That’s part of the mix of the new commitments that we talk about. But I think it’s still little early yet to go out and sort of, take effect to the position in terms of freighter conversion. That could change. But what’s really interesting to me is that there is so many attractive opportunities, we’re hearing now deals where you don’t have to take placement risk.

Anthony Sibilia – Credit Suisse

Okay. And then you also kind of said, you see -- you're seeing a lot more transactions in those kind of -- that volume increasing. Are they kind of sales leaseback opportunities? Are they becoming like less one-off opportunities when you -- where you’re seeing airlines kind of may be do two or three planes at once. Is that becoming kind of more common?

Ron Wainshal

I think that will be more sale leaseback opportunities at every type, over the course of the year. And we are not competitive, not that interested in the brand-new narrow bodies. But when you go far away from that, I see them of being extremely good value and then some of those transactions are bigger.

Anthony Sibilia – Credit Suisse

Okay. Fine. Thank you, guys.

Ron Wainshal

Okay.

Operator

And we’ll go next to David Fintzen with Barclays Capital.

Isaac Husseini – Barclays Capital

Good morning. This is actually Isaac Husseini filling in for David. Ron, thank you for the thorough overview of the current market conditions. But I just wanted to go back to something you told actually in the presentation this morning. As I go back to 2010, the same time 2010 and 2011, it looks like you had 17 out of 19 and seven out of nine aircrafts placed. We had a couple that you were working on for that year. It looks like you’re going to be working on 10 to 12 placements.

Should we lead them into how much could it be taking you in terms of placing aircraft lessees or are we just looking at different aircraft types for 2012 versus what you had for 2011 and 2010 that may be incrementally a bit more difficult or tougher to place?

Ron Wainshal

I think the market environment is very different when you’re relaxed and so is the mix of the airplanes. So we aren’t relating into it. We are chipping away what we have. You will always see a bit of seasonal effects in aircraft replacements. In the passenger market, the demand always picks up in the spring and it slows down in the fall and winter.

In the cargo markets, a little bit different, you see more of a peak interest in July through January and that kind of coincides with the Christmas shopping seasonal shipments to go with that. So there is a seasonal effect there. But I think it’s just apples and oranges completely. And as I said I’m pretty happy we’ll get our 2012 lease placement done pretty efficiently.

We’ve done with some unforeseen setbacks in the context of our world. And I’m pretty confident we’ll get the Cimber airplanes put away quickly. I think the revenue effect of Cimber is probably in total 1 million bucks to 2 million bucks -- $1 million to $2 million for the full year 2012, just to put it into some context.

Isaac Husseini – Barclays Capital

Okay. And then the, next question I have for you is, I look back since early 2007 the yields look like they hovered around (inaudible) of financing cost. If I just look at LIBOR and some kind of spread, look like them more volatile. Could you share your thoughts and may be provide some color on how Aircastle manages that spread risk, if we were able to environment or maybe the financing cost increase and yield will remain at that 14% level?

Ron Wainshal

I just want to make a couple of comments. Firstly, I’d like to elaborate that. We -- our financings are to -- historically have been LIBOR based. The recent unsecured bond yields are fixed but we’ve had policy of hedging. Almost all of our revenues are fixed and so the policy on the financing side is to keep the interest fixed too.

So if LIBOR moves up and down. That doesn’t really affect us because of how we’ve locked in those interest cost. I think the best parameter of cost is what’s happened with our bond yields. While we first did our deal in 2010, the effect of yield on that was 10%. The add-on deal we did in December was 9% and the deal we disclosed was a little over 7%.

So I think as the margin being an expanding one. Now, the investment opportunities don’t stay stagnant either, you’ll see in the market today I think better yields. And so what we’re targeting, it depends on the asset type, probably yields in the low double digits depending on aircraft type. So if you’re doing that, you’re borrowing two thirds and your cost of debt is around 7%. Churn on equity in the incremental investments is going to be in the high teens, if not better.

Isaac Husseini – Barclays Capital

Okay. Thanks so much.

Operator

We’ll go next to Halane Becker with Dahlman Rose.

Halane Becker – Dahlman Rose

Thanks very much, operator. Hi guys. Just one clarification question first and that’s on interest expense or the charges there, are these considered -- should we see think about them as ongoing or one time item?

Mike Inglese

As I said earlier, that will be a one-time write off of deferred financing fees of about $3 million in the second quarter. And then on an ongoing basis through May 15 which is the original expiry of the bank loan that we repaid. There will be a hedge amortization loss that gets amortized and that amount in this -- will be about…

Halane Becker – Dahlman Rose

What about decline every quarter or would that be the same in every quarter?

Mike Inglese

It will -- balance of 2012, it will be about 4.5 million a quarter.

Halane Becker – Dahlman Rose

Okay. I think you actually might have said that at the Investor Day. Are there any balance sheet impacts to that that you’re concerned about?

Ron Wainshal

In what context, I mean, if we swap one form of debt for another and we freed up restricted cash and used some of that to pay the hedge termination fee in the second quarter.

Halane Becker – Dahlman Rose

Okay. All right. It will then -- those will be adjustments but I guess, I’m thinking on that. Thank you. Just in terms of our customers, I think, Ron, you might have mentioned that on the portray you’re seeing, may be, one or two customers that might have issues but just in general, are you seeing any signs in some other markets that have been confused that those markets are bottoming out, like in India. Is there any signs that things are stabilizing over there as one market that’s kind of been and more down and uphill?

Ron Wainshal

Yeah. That’s an interesting question. There are different stories out in the world but since you mentioned India. India has -- is still kind of very complicated market but it’s improved. I’ll say that much simply because one of the competitors is effectively gone. Kingfisher has reduced its fleet. It’s operating from 60 to 70 aircraft year ago to somewhere around a dozen airplanes today. And that certainly has a positive impact on everybody else who is playing.

It’s still kind of a messy market because you have one government-owned airline that isn’t kind of playing the same way that the other guys are. And you have a lot of other government factors sort of getting in the way of good operating performance for the sector. But it is a sector. It has a tremendous amount of promise, and it is one that we’re always looking at.

We’ve decided while ago to kind of bow out of India because of all these issues. And our exposure there is grand total of 2737 NGs which come off next year. But we look at opportunities incrementally from time to time. I do think it is improved and that’s -- it's something that’s kind of (inaudible).

Looking at other parts of the world, there has been a slow down of growth rates in Asia but we’re seeing good demand there in general. Turkey continues to be an interesting market for us. Russia is also interesting. We’re being very selective about that market. I think the one kind of -- I wouldn’t say the placement market but it’s investment opportunity in North America is becoming more and more interesting simply because of the discipline at one hand and because of the capital demands on the other.

Halane Becker – Dahlman Rose

Okay. And then can I just ask you one question about 757. I know that there -- not attractive necessarily for passengers. If airlines do…

Ron Wainshal

I agree with that.

Halane Becker – Dahlman Rose

….passengers about anymore, right. You will or would not?

Ron Wainshal

I would not agree with that comment. I do think they are attractive for passenger aircraft in fact. I think the MAX and the NEO do not adequately replace all the capabilities of 757s posses.

Halane Becker – Dahlman Rose

Okay.

Ron Wainshal

And I still see -- you've seen a number of, kind of, late (inaudible) aircraft that were very tired from a maintenance perspective, get kicked out of American Airlines. I’ll turn to that. Those were kind of -- that may be about 10, 12 aircraft in total. We’re seeing good demand for 757s. I do think they will be an excellent freighter. I think that FedEx has moved to kind of continuous program of switching out its 727s which were quite old and quite efficient with 757s, it’s a definite positive. The FedEx program right now is authorized for 120, 130 aircraft, which is more than 10% of the entire fleet ever built.

So that kind of provides underlying support but you don’t have aircraft that can effectively fly from the mainland Hawaii in this kind of density or that the MAX will not fly across the Atlantic like 757 does so. There are submissions that are uniquely still suited for 757.

Halane Becker – Dahlman Rose

I’m sure. That was -- you cleanly answered the question which was given FedEx’s demand for the 757 -- use of the freight. Can you kick them effectively out of passenger source and put them into the freighter market and then you give me even better answer so. Thank you very much.

Ron Wainshal

Sure. And the other thing is we have over the last two years, three years sold FedEx five 757s.

Halane Becker – Dahlman Rose

Well, they could do some more.

Ron Wainshal

Yeah.

Halane Becker – Dahlman Rose

Thank you.

Ron Wainshal

Welcome Halane.

Operator

We will go next to John Godyn with Morgan Stanley.

John Godyn – Morgan Stanley

Hey. Thanks. I was hoping that you could -- Ron you could elaborate on, sort of the trajectory of lease rate trends that we’ve seen. It seems like we went through this period of softening trends and now they are kind of bottoming. And there is hope for an inflection.

And I know we can’t quantify this but could you just kind of speak to, what extent, slowing demand played a role in the softening and then to what extent it’s important in the inflection. To what extent, manufacture over production played a role and to what extent extra supply hitting the market?

Do the delinquencies play a role in sort of the outlook here? I just want a better sense hopefully of what we are betting on, so to speak as we see the leasing cycle on full term here?

Mike Inglese

Well, I’m trying to think of a way to give you an answer, just taken an hour . There is such a different impact by aircraft type. I think the general point of business confidence is one that goes across the spectrum. And you’ll see it transmitted more immediately in the freight market than you own in the passenger market. Because it’s a less tricky situation.

Big planning happens in a much more reactive way in the freight market. And we’re seeing an increase in demand for 747-400 freighters. I think if we were to look at lease rates for the aircraft that come out over the next year or too, that probably went higher than what we saw in the first quarter.

I don’t know if we could put a (inaudible) perhaps, it may be 10%, 15% higher. The 737 NG market has been more robust. I think there -- I'm less worried about the production increases because they have been smaller, and they have only taken effect recently.

With the 320 market, you have -- I should say the 320 family market, you have the number of things already once you have production increases that have been kind of wrapping up over some period of time. And whether I like it or not, I think those were continued because of the fleet times involved.

I also think you have kind of ebbs and flows in terms of additional supply that gets kicked out in the market. The Arab spring was particularly Airbus heavy and that’s just a customer mix issue.

Some of the bankruptcies have affected the market this year. The Kingfisher reduction (inaudible) bankruptcy were more Airbus oriented. And so those are stealing the effect little bit more.

I don’t know that could quantify it. Maybe that’s kind of the bottom line answer but I think the business confidence issue is even bigger one when it comes to white bodies and freighters and you know if you look at the most recent IATA release, they have the nice presentation. It shows revival in business confidence that these things can usually reverse but it’s kind of a nice trend.

I think the other things that got worth noting in the freight sector is the level of inventory overhang which has been pretty low. And so if you have low inventory and increasing business confidence -- thanks for the freight structure.

John Godyn – Morgan Stanley

That’s really helpful color. And Ron, I think at the Investor Day made this comment that, the platform could handle basically double the amount of business or the size portfolio can double without really adding to SG&A. Can you just sort of help us think, and I know -- and I am not asking for our growth target that we’re going to hold you to, but can you help us think how many years would it take for the portfolio to double, what or alternatively what might sort of a CAGR that you sort to hope to achieve in terms of portfolio growth annually look like as we look out for number of years, any commentary on that would be helpful.

Ron Wainshal

Let me give you one historical fact, we grew to $4 billion in our first three years with the much smaller team. So we can certainly do it. The passive growth is something that, I don’t want to sit down (inaudible), because I -- our philosophy is not that you kind of play hockey-stick and grow irrespective of what’s going on in the world (inaudible) stepwise. And if there is good investment opportunities and good financing opportunities for same time and even may earn a good return equity and we will grow.

If both of those same through on line and you don’t and it’s a cyclic market and there are sometimes for you want to step on the accelerator, I think this is one or two times and there are sometimes you don’t. So, I don’t see as doing its straight line growth and I am lot more nervous about making fix commitments for long period of time, given the volatility to market and given our kind of more conservative stands on financing.

I do think that looking after five years seeing a company double or size, it’s not unreasonable growth prospect. We have been in the straight line, we have been it all, I don’t know. It probably won’t be a straight line, you can does. But the -- our philosophy look embrace to cyclicality of the market take adventure.

John Godyn – Morgan Stanley

Okay. That’s helpful. And just changing topic a little bit, and I know the timing isn’t right for returning more cash to shareholder just given some your recent debt deals. But as we kind of think longer term down the line -- what is the path look like from here towards seeing some dividend increases or you guys authorizing and executing some buybacks. How do we see that involving, is that years down the line, is that later in 2012. I am just trying to understand that a little bit better.

Ron Wainshal

To put in the some historical context, last year we increase our dividend twice in total 50% increase. And obviously, we implemented $90 million share buyback program that was done in a lower share price and lower invest in return market. We are not close monitor and we look at this, our board looks to this from time-to-time in terms of share buybacks.

But its dividends, I think the key way there is a sustainability. And as we grow our earnings base as we improve our cash flow and by the way I think that the cash flow improvements from our [bamboozler] we are really, really substantial. We look at it increasing the dividend. I think the Board and management are committed to being dividend paying company. I think it’s sort of tie to a sustainable growth in our earnings call.

John Godyn – Morgan Stanley

All right. That’s great. Thanks, guys.

Operator

We will move next Arren Cyganovich with Evercore.

Arren Cyganovich – Evercore

Thanks. (Inaudible) if can you tell us a little more details about the private aircraft that you have signed for purchase and I guess you said most of those we closing in the 2Q and if any details on timing -- for as well?

Ron Wainshal

There are -- is one freighter. One Widebody freighter, there is one new Widebody passenger aircraft and there is three mid air bodies. Timing is that on that is probably towards the back half of the quarter.

Arren Cyganovich – Evercore

Okay. That’s helpful. And then also that the lower lease discounts, can you help me understand, how those folk through are use to this is the lowest level that you mentioned 1Q ’09 and I guess you said there will be roughly 01 in the second quarter. How do you -- how to those fluctuate, they have been fairly study for while and what would have been impacts they are making at bounce around recently?

Ron Wainshal

Yeah. What’s happened recently, Arren, to some of the unscheduled terminations are lease expiries and when you have been accruing a lease incentive for something that it turns out you don’t actually have to do anything for our fund that liability goes away. And so we have some of that effect in the first quarter with the return of the aircraft from world, and we expect more of that if you will in the context there is a Cimber bankruptcy filing are earlier today.

Arren Cyganovich – Evercore

Okay. So buying additional returns in about half of the years that shouldn’t bounce back to a more normal?

Ron Wainshal

Probably bounce back to little more certain normalized level that we saw last year.

Arren Cyganovich – Evercore

Okay. That’s helpful. And then lastly on the Cimber 700 coming back, I guess, folks have been talking for while that the 700 and 319 assay classes -- relatively weak over the past year too. Can you talk about whether or not there is going to be any accelerated depreciation or impairments related those aircraft?

Ron Wainshal

No. The seven -- first of all, you are right. I mean that market sector in generals weaker than I used to be and that’s a structural shift. We don’t see short haul market being a premium market anymore it’s all kind of low cost, and so bigger planes like the 800 versus 700 to do better.

Having said that, the 700 is a lot stronger in terms of market demand in the 319, last year we took a move to (inaudible) economic life assumptions on 319, we don’t feel the same way about 700 and given the re-marketing efforts, so we have been putting today into this aircraft in any case, feel pretty good about -- we’ll be able to generate and I don’t see any impairments coming around.

Arren Cyganovich – Evercore

Great. Thanks a lot.

Ron Wainshal

Sure.

Operator

We’ll move next to Glenn Engel with Bank of America-Merrill Lynch.

Glenn Engel – Bank of America-Merrill Lynch

Hi, good morning. The $43 million debt investment good effects show up in terms of the returns, so that show up in net interest expense?

Ron Wainshal

It’s going to show up two other revenue on a go forward basis as you accrete the discount to pore and the interest that you received in that going forward.

Glenn Engel – Bank of America-Merrill Lynch

Both unexpectedly and expectedly, what’s happened in two lease rates and how is that different from normal?

Ron Wainshal

I think lease rates have been kind of continuing a steady pattern and talking about it, if you ask me, how’s you -- our expectations today compared to what we talk about during our year-end call there will be discuss same.

Glenn Engel – Bank of America-Merrill Lynch

And for the simple plans, what would you expect to see drops in this freight is result those re-leases?

Ron Wainshal

Those aircraft when allow 200 and I would expect them to be in the mid to high 100.

Glenn Engel – Bank of America-Merrill Lynch

Thank you very much.

Ron Wainshal

We -- a question of who is the counter party and the reconsidering cost and so on.

Glenn Engel – Bank of America-Merrill Lynch

Thanks.

Operator

And we’ll move next to Mark Streeter with JPMorgan.

Mark Streeter – JPMorgan

Ron, good morning. Question for you, I think the market expect to Delta to take the 717s that Southwest now has the air trend in building capital (inaudible) although Delta has done a little bit of curve. They are now talking about maybe given that (inaudible) A319 fleet of significant size in used market and if we are going back to number of 717 Southwest that’s 60, 70 planes something like that.

I am just wondering if they were to go down that route. Is that something that could clean up to used Airbus in narrow-body market? Is that enough, would it take a lot more? I’m just wondering if you think there is counter cyclical controlling and play to make any Airbus Narrowbody’s given the weakness there?

Ron Wainshal

Delta is not the only company looking -- upsides looking at 319s as a replacement for older aircraft or for regional aircraft. And I think the really sensible thing for them to do. What they actually -- and by the way that 717 in that context looks very vulnerable to me. This could simply because of its narrowness of its operating base. That’s because of its airplane because so few alternatives for that airplane.

The 319 can be a play. We have been looking -- it could fit into our, call our, mid life narrowbody strategy where you have a quick payback to put up value. The engines on 319 are buy and large the same engines flying on the 320s. And so if you get into the right price and if you have the decent enough (inaudible) you could do quite well. And we look at that from the time to time. So far on 319 market, we haven’t seen owners of aircraft to part with their (inaudible) to acceptable price.

Mark Streeter – JPMorgan

So you think that if Delta would have move forward would that is that enough to clean up that market or another potential big operator of that fleet type?

Ron Wainshal

We just more in entry 20 but…

Mike Inglese

If that’s were to make it big move in (inaudible) huge effect. I don’t cleaning up is not sort of a scientific term but it have a dramatic impact on rappels.

Mark Streeter – JPMorgan

Yeah. I just thought because we are talking about the 757 and (inaudible) forth and it seems like – it’s relatively new news the Deltas looking that 319 do you certainly when you look at that we get the Airbus now about between 319 and 320. How do you view that is – are the 320 more we could and (inaudible) 319?

Mike Inglese

Yeah. 319 are the weakest of the family.

Mark Streeter – JPMorgan

Okay.

Mike Inglese

And so Delta has been really opportunistic over the last several years in terms of fleet and they picked up these empty 90s a very, very low prices and by the way the empty 90s are flying to same engines as we (inaudible) into the same engine 320 because to that family. The 319 are separately relatively my earlier remark because of the shift in short haul market that’s been they a long standing phenomenon it’s towards 320 so far.

Mark Streeter – JPMorgan

Okay. Great. Thanks, Ron.

Mike Inglese

Sure.

Operator

We will take a follow-up question from Gary Liebowitz with Wells Fargo.

Gary Liebowitz – Wells Fargo

Yeah. Thanks. Michael I am trying to understand the revenue guidance for the next quarter you have a basically flat with Q1 maybe a down little bit but you (inaudible) A330 in early April that’s going to be $2.5 million of around straight there and we’ve already more plans to (inaudible) 330. I know you have Cimber (inaudible) why revenue should be flat that up in Q2 (inaudible)?

Mike Inglese

A couple thing. I think what we said is the acquisitions in the second quarter absent the Airbus A330 or going to be back end of the quarter and some of the may in fact slip into Q3. Also at the end of the first quarter, we have 747 which is on the passenger lease, come off lease that was at a very attractive lease rate for sometime and I am not expecting that to be back into revenue service during the second quarter.

Gary Liebowitz – Wells Fargo

Okay. What was the actual number, the dollar amount of acquisition that close in the first quarter?

Mike Inglese

80.

Gary Liebowitz – Wells Fargo

Okay. Thank you.

Mike Inglese

Sure. This is some other kind of minor noise there when you have lease extensions you have average down the rental. And those are not going to be driving the result that much but they did have an effect on some of the result last year when we extended for example U.S. service A330s for those. And we’ve got few extensions in place and that was a great deal that had negative effect from a GAAP perspective.

Operator

And there are no further questions at this time.

Frank Constantinople

Okay. Thank you for your time. If you have any follow-up questions feel free to call me at 203-504-1063. Have a good day.

Operator

And that does conclude today’s conference. We thank you for your participation.

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