Aircastle Limited Q4 2007 Earnings Call Transcript

Aircastle Limited (AYR)

Q4 2007 Earnings Call

February 22, 2008 9:00 am ET

Executives

Julia Hallisey - Investor Relations

Ron Wainshal - Chief Executive Officer

Michael J. Inglese - Chief Financial Officer

Analysts

Andrew Light - Citi

Jamie Baker – JP Morgan

Scott Penn – JP Morgan

John Stilmar - FBR Capital Markets

Rick Shane – Jefferies & Company

George [Goetz] – Private Investor

Presentation

Operator

I would like to welcome everyone to the Aircastle fourth quarter and year end earnings conference call. (Operator Instructions) Ms. Hallisey, you may begin your conference.

Julia Hallisey

I’d like to welcome all of you to the fourth quarter and full year 2007 earnings call for Aircastle Limited. Joining us today are Ron Wainshal, our Chief Executive Officer; and Mike Inglese, our Chief Financial Officer.

Before I turn the call over to Ron, I would like to mention that this call is being recorded and the replay number is 800-642-1687 from within the U.S., or 706-645-9291 from outside of the U.S. with the replay pass code of 34057276. This call will also be available via webcast on our website, www.aircastle.com.

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

Now I would like to turn the call over to Ron.

Ron Wainshal

We are pleased to be here to discuss Aircastle’s fourth quarter and full year 2007 results. I am going to cover the company’s key accomplishments, our current views of the market, and what we see going forward. Mike Inglese, our CFO, will follow with a discussion of Aircastle’s financial results and our capital markets activities.

Simply put, 2007 was an outstanding year for Aircastle, and the fourth quarter is perhaps our most successful to date as we executed on our strategy of building a profitable, dividend paying company in a large and growing global aircraft leasing market. Demand for aviation assets remains strong, notwithstanding the financial market issues and the apparent economic slowdown.

Let’s start with the headline numbers. During the fourth quarter, our net income was $35.3 million. Full year 2007 net income was $127.3 million. Mike will cover these results in greater detail, but suffice it to say these figures are up significantly from previous periods with the increases fundamentally being driven by the company’s growth in assets, particularly given the limited role that asset trading has in our results.

At year-end 2007, total aviation assets by aggregate purchase price were $4.1 billion, up 131% from year-end 2006. During the year we acquired 65 aircraft for $2.3 billion, including 24 aircraft for $820 million during the fourth quarter. Roughly a billion of this acquisition volume is attributable to a large portfolio acquisition we closed during the course of the year.

The remaining $1.3 billion in investments were contracted through smaller middle market transactions where we found good value by building on the strong origination capabilities and a disciplined approach of combing through the aircraft market for what we consider to be the most attractive opportunities.

More specifically, our acquisition activity for the year consisted of 17 different deals with 16 different counterparties, including several different types of participants, including airlines, other lessors, and even governmental entities. We also placed an order with Airbus for 15 new A330 freighter aircraft as a launch customer.

We have assembled a well-structured and diverse portfolio consisting of high utility assets with broad operator basis. As of December 31, 2007, our fleet consisted of 133 aircraft of which 131 are on lease and the other two currently undergoing passenger to freighter conversion. Both of those aircraft being converted to freighters are subject to long-term leases that will commence once they come out of the shop.

Our fleet is leased to 58 different customers in 31 countries around the world. The average remaining lease term at year-end 2007 for the whole portfolio is approximately five years. I note that 91% of our portfolio by net book value is leased to airlines outside the U.S., reflecting both the relatively small roll U.S. airlines play in the operating lease business and also the importance of operating leasing in the globalization of the air travel industry.

By value, approximately 85% of our aircraft are the latest generation technology for their class, allowing us to take advantage of the robust and still strong demand for fuel-efficient and operationally reliable passenger and air freight list.

As we have highlighted during our earlier presentations, the air freight sector remains an important element of our investment strategy and it accounts for approximately 25% of our portfolio, excluding our new order aircraft.

Our team’s accomplishments in the aircraft placement area during the year are also notable. We signed 40 leases or renewals during this past year. All 23 aircraft placement needs in 2007 have been placed or had leases extended, and for the aircraft that were previously leased, the new rentals are up 18%. The weighted average new lease term for these aircraft is approximately five years.

We also acquired 10 aircraft off-lease during last year and placed them on leases with an average turn of approximately five years.

Turning to 2008, we have taken care of 20 of our 21 placements. For the aircraft that are coming off lease, we expect the overall new lease rentals to be 5% to 10% higher than the previous leases, and will have an average lease term of seven years. We’ve also made considerable progress towards placement of our 2009 lease roll-off.

At year-end, Aircastle had 69 employees with significant in-house expertise in all basic aircraft leasing functions. We’ve built an experienced and world-class team that allows us to buy wholesale and this differentiates us from some of our competitors who rely on third-party servicing and therefore have more limited transaction sourcing capabilities. Moreover, we believe our platform is scalable and allows us to grow efficiently as and when opportunities arise.

Turning to capital markets, we successfully completed a $1.17 billion portfolio securitization this past June and were able to benefit from the favorable terms available then. This transaction and the securitization we closed in 2006 provide long-term and low-cost financing for 99 of the aircraft in our portfolio.

Mike will address our financing plans for the other aircraft, but in general we’ve redirected our term-financing efforts towards the traditional aerospace bank market. We believe the bank market remains quite viable, both for portfolio transactions and for aircraft-by-aircraft deals, particularly for borrowers utilizing a lower leverage structure of approximately two-part debt to one-part equity as we do. And we’re encouraged by the market’s reception so far.

We also believe our success in sourcing equity capitals as we did twice during 2007, raising gross proceeds of more than $860 million, gives us a strong balance sheet and facilitates our access to further capital. To this end, we were able to add $300 million in additional borrowing capacity late January.

The successes we’ve had throughout the year enabled us to increase not only our earnings, but our earnings per share, and we’ve translated this accretive growth into higher dividends for our shareholders. At $2.80 per share annualized, our dividend has doubled since our IPO in August of 2006.

Turning to our current view of the market, despite the financial market volatility and the present U.S. economic slowdown, we continue to see robust lease demand for modern aircraft models around the world. In general, we see the rental rates for most aircraft types being at least as high as they were last year.

In some cases, like for the mid-body A330 and Boeing 767 models, which are in short supply due to relative market growth and new production limitations and delays, the rental increases are pronounced, and are at least as much as 10%, even 20% compared to last year.

We believe several factors are contributing to the market’s continuing strength, including first, the large and growing new order backlogs at Boeing and Airbus; secondly, the weakness of the U.S. dollar and the resulting cheapness of dollar market assets such as aircraft; thirdly, worldwide travel demand is continuing to grow rapidly and broadly while high fuel costs are exerting continuing pressure on operators to retire less efficient and older technology aircraft.

Though there are considerable differences by region, the International Air Transport Association statistics for the full year of 2007 show that worldwide travel consumption increased 7.4% versus 2006. This growth rate exceeds the 6.2% growth in capacity resulting in even fuller aircraft.

For the month of December, global air traffic growth was slightly slower, but still a healthy 6.7% versus the year earlier results, and also outpacing the 6.1% increase in capacity. So the trends are good. Even the pricing trends in the air travel sector in the U.S., which is most closely related to the economic slowdown, are reported by the major carriers so far to be encouraging.

Growth in the overall air freight sector has been 4.3% year-over-year, while capacity growth increased 5.3%. The December results are similar. This sector is experiencing more pricing pressure from shippers as they ship certain lower value and less time-sensitive good from air transport to ships.

However, digging deeper, the trends are more favorable for larger, more modern, and longer haul aircraft such as Boeing 747-400s given high fuel prices and the operating advantages such aircraft have relative to the much older models in service.

With regard to aircraft purchases and sales, while there’s still a reasonable level of transaction activity, we’ve seen a clear drop off in completed deal volume compared to last year. We believe this is a reflection of seller expectations for higher prices borne out of the underlying strength in demand for aircraft leases, while at the same time buyers are generally seeking to obtain improved returns to offset increased capital costs.

As a result, there appear to be fewer deals getting done, and we don’t see this dynamic changing for some time, though, in our view we believe prices will eventually soften. Looking ahead, we’ll continue to apply the same disciplined investment approach we always have and we’ll only seek to make incremental investments if they’re accretive.

At the moment we’re not finding many opportunities which we consider to be attractive. As a consequence, we believe our incremental investment activity will be limited during the early part of 2008. It’s too early to predict how the market conditions will evolve during the second half of the year, but we expect pressure to transact will grow and it will be most pronounced in the secondary market, which is where we believe the best opportunities will arise.

Also, to the extent that the current financial market disruptions persist, we believe the likelihood of M&A activity in the aircraft leasing market will increase. We also intend to explore opportunities to leverage our team’s significant capabilities, both with respect to third-party investment management services and in exploring ways to expand the range of our investments in areas that are complementary to what we consider to be our core strengths such as engine leasing.

With that, I’ll turn it over to Mike Inglese.

Michael J. Inglese

I’d like to spend a few minutes covering our financial results for the fourth quarter and full year, and then update you on current financing activities.

First, regarding financial results, Aircastle had a net income of $35.3 million, or $0.46 per diluted share on revenue of $120.7 million for the fourth quarter of 2007, compared to net income of $19.8 million or $0.39 per diluted share on revenue of $59.6 million in the fourth quarter ‘06.

Q4 ‘07 income from continuing operations was $33.9 million or $0.44 per diluted share versus $19.1 million and $0.38 per diluted share respectively for the fourth quarter of 2006. These results include non-cash charges for share-based compensation expense of approximately $1.4 million for Q4 ‘07 and $1.2 million for Q4 ‘06.

Revenue and income from continuing operations for Q4 ‘07 were up 103% and 78% respectively compared to Q4 ‘06, and were up almost 15% and 4.5% compared to Q3 ‘07.

For the full year 2007, net income was $127.3 million or $1.89 per diluted share on total revenue of $381.1 million, compared to $51.1 million or $1.11 per diluted share on total revenue of $182.9 million for the full year 2006.

Income from continuing operations for 2007 was $114.4 million or $1.70 per diluted share, up from $45.9 million or $1.00 per diluted share in 2006.

At December 31, 2007, we owned 133 aircraft including two aircraft that were ongoing the freighter conversion process. For the 131 aircraft on lease and in service at year-end, we had contractual aircraft lease rentals on a monthly run-rate basis of $43.1 million or $516.7 million on an annual basis, up 19% from the end of the third quarter 2007, producing a gross yield on the aircraft portfolio of 13.9% or 1.16% per month.

Depreciation for the fourth quarter of 2007 was $42 million and for the full 2007 was $126.4 million. The year-end in-service aircraft portfolio had a monthly run-rate depreciation expense of approximately $15.7 million.

For Q4 2007, total SG&A was $11.7 million, up from $6.9 million in Q4 2006, including non-cash share-based compensation expenses of $1.4 million in Q4 ‘07 and $1.2 million in Q4 ‘06. The increase in Q4 ‘07 cash SG&A reflects higher Q4 expenses related to final year-end bonus determinations and increased professional fees associated with year-end audit activity and first year Sarbanes-Oxley compliance work, and does not represent a fundamental increase in the run rate that we expect for 2008 SG&A results.

Full year 2007 SG&A of approximately $32.4 million, excluding stock comp expense of $6.7 million, was approximately 85 basis points of the net book value of flight equipment held for lease at year-end, compared to 121 basis points for a comparable 2006 metric. Our expectations for 2008 cash SG&A are for a few million dollars higher than the 2007 reported full year results.

Interest expense for Q4 ‘07 was $29.5 million, net of $2 million of interest income earned on cash balances and $4.5 million of capitalized interest. Gross interest expense for the quarter of $36 million on weighted average debt outstanding of approximately $2.2 billion for the quarter gives a weighted average cost of funds of 6.54%, for the full year, interest expense of $92.7 million, net of $12.2 million of interest income and $7.3 million of capitalized interest.

Gross interest expense of $112 million on weighted average debt outstanding of about $1.7 billion, excuse me, gives a weighted average cost of about 6.56% for the year.

In the fourth quarter, we recorded a tax provision of $2.7 million, or an effective rate of 7.4%; full year total of $7.7 million or 6.3% effective tax rate, reflecting the revenue and income sourcing mix on the portfolio. As a note, cash taxes paid in 2007 was approximately $5.8 million.

Cash flow from operating activities grew to approximately $373.8 million for 2007 from $135.3 million in 2006, reflecting the growth in the aircraft portfolio over the last years.

I’d like to touch for a minute on a couple of elements contained in the financial statements in the press release today. You may have noted on the balance sheet fair market value of our derivative liabilities related to interest rate hedges was $154 million at year-end, an increase from $55 million at the end of September 2007, which resulted from the significant downward change in interest rates and future expectations reflected in forward curves.

Certain of our derivative contracts require that we and our counterparties post cash collateral when FMB measurements exceed certain thresholds. Consequently, at December 31 ‘07, we had $35.9 million of collateral posted, which is included in other assets on our balance sheet at year-end.

As of yesterday, given the changes in rates since year-end, the aggregate fair market value of this derivative liability was approximately $213 million and the collateral posted was approximately $54 million.

For interest-rate hedging contracts related to the 99 aircraft financed under our first two securitizations, there are no collateral posting requirements. And we expect that when we close our long-term financing for the aircraft portfolio that we’re working on now we will eliminate collateral posting requirements on the hedges as part of that deal.

Year-end secure debt outstanding of approximately $2.5 billion represented 60% of the $4.2 billion net debt-book value of our aviation assets.

As many of your know, our first two securitization deals which had debt outstanding of $1.68 billion at year-end were wrapped by FGIC. I’d like to note here that the recent downgrades of FGIC ratings do not impact the economic terms of these deals for Aircastle and do not change any of the rights or obligations for the parties to these securitizations.

In October 2007 we raised $338 million of net proceeds from our equity offering, and also earlier this month, we entered into a $300 million senior secured credit facility with JP Morgan and Calyon on attractive terms to supplement our existing warehouse capacity and provide additional financial flexibility for Aircastle. As of today we have 35 aircraft financed on our combined $1.3 billion of committed warehouse facilities with approximately $900 million outstanding.

As we’ve discussed previously, we plan to refinance these aircraft as well as several others we expect to acquire over the next few months in a new term facility. We anticipate closing this during the second quarter of the year. With the closing of this expected facility, we would create renewed availability of approximately $900 million under our existing warehouse facility.

We expect pricing on this deal at the spread-to-swaps level to be in the 175 to 225 basis points level, and factoring in our existing hedges an expected swap costs for the new deals would give us estimated all-in costs for the financing in the low 7% range.

With respect to our $250 million revolving credit facility, we currently have $6 million of letters of credit posted and no outstanding borrowings, in addition to $43 million of unrestricted cash on hand. And finally we have adequate financing in place today to fund our remaining 2008 commitments.

And with that, I’d like to open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question will come from the line of Andrew Light - Citi.

Andrew Light - Citi

On your acquisition commitments for this year that you just mentioned, can you just give me an idea of what that is at the moment? And how much do you think you could realistically acquire this year without having to do an equity issue and keeping within your net-debt to cap targets?

Michael J. Inglese

As of today we have approximately $260 million of remaining cash commitments to fund in 2008. And we don’t need any incremental equity to fund our existing commitments. Beyond that and depending upon the size of what those incremental investments would be may require us to look to raise additional equity.

Andrew Light - Citi

Last year you had a target, originally $1 billion, and then it got extended to $2.3 billion in the end because of the Guggenheim transaction. Do you have a similar kind of ballpark target for this year for acquisitions?

Ron Wainshal

No, we try to stay away from targets. Generally what we do is we look at the opportunities in the market. And if they make sense we’ll execute on them. But right now as I mentioned during the prepared remarks, we are not seeing things that are that interesting. And it will be entirely driven by the economics available. So if they’re good deals to do we’ll do them, if not we won’t.

Andrew Light - Citi

You say you’ve done 20 out of 21 planes this year. Can you me give me an idea of how many have yet to be placed for ‘09 and ‘10? And also are you looking to secure commitments for your freighters or is it really too early for that?

Ron Wainshal

For 2009 we have 21 aircraft to place. We’re not quite halfway done there if you count letters of intent. We have active discussions going on in nearly all the rest of those but those take a little bit of time to actually get to fruition. But we’re seeing really good engagement from lessees.

And in fact, a number of the aircraft that have lease expirations later in the year were actually initiated by the lessees themselves because they are concerned about losing their lift. For 2010 I don’t recall the specific statistic, it’s a slightly lower number in terms of lease placements. We’ve even had a couple of conversations regarding those aircraft as well.

As far as the freighters go, we are actively marketing those aircraft and hopefully in another call or two we’ll have some things to talk to about.

Andrew Light - Citi

On the conversion freighters, when do you expect those to come into service and can you remind us if you have any more coming on this year?

Ron Wainshal

We have converted freighters coming from two different sources; one of them is from the Guggenheim transaction. There’s only one of those left that’s delivering next month. And then of the deal that we mentioned during an earlier call, I think it was a third quarter call, we purchased three 747s, the first is delivering also next month, that’s on lease.

Another aircraft is coming out in, I think in October of this year. And the last one is coming out in February of next year. Only that last one remains placed and that one is actively being marketed.

Andrew Light - Citi

How long do they take to actually convert, I mean the downtime?

Ron Wainshal

This first one was approximately four months.

Operator

Your next question will come from the line of Jamie Baker – JP Morgan.

Jamie Baker

I’m wondering if you can talk a little bit about with froth if you will, coming out of the market and some of your competitors pulling back on acquisitions and so forth, you mentioned that the approach that you’re taking is a little bit more cautious. How long do you think it takes until the market adjusts and perhaps you’re more willing to be more aggressive and go out there and acquire some more aircraft?

Ron Wainshal

Well, I think the market; the level of activity today is a lot less frothy than, let’s say, a year ago. I think there’s a lot of deals that are actually out in the market right now, there’s a lot of talk. But in terms of deals getting done, it’s not happening; at least we’re not seeing it.

I think there will be probably three, four, five months before sellers are willing to sort of accept that prices will have to go down on account of capital costs being higher. We’ll have to see, and it’s not going to fall evenly. I think the secondary market as I mentioned, that is aircraft that lessors are selling as opposed to airline sale-leasebacks will probably be the first market to show more activity. And so that’s where our focus is.

Jamie Baker

And then one of your competitors which people will naturally compare you to has gotten a lot more cautious regarding their dividend policy. They have decided that what the prudent policy is for them is to keep their dividends flat. I’m wondering if you can talk a little bit about your approach to the dividend, what you’ve acquired and how you think you’re going to grow the dividend going forward.

Ron Wainshal

Our approach on the dividend has been pretty consistent since the beginning. And we try to take a best view of the run rate earnings power, the real economic earnings power of the company and pay that out as a dividend. Nothing’s changed.

During the fourth quarter when our Board of Directors got together we took a look at the market as it existed there, looked at the revenue picture which I think is in pretty good shape, looked at where we would project the financial markets to be and came to the conclusion that we should pay the dividend we paid.

It’s a quarter-by-quarter thing, but our philosophy is the same. And we’re not holding anything back. It’s what we think is a real economic power of the company.

Jamie Baker

And if we look at your forward commitments to aircraft and so forth, I think you could say that you’re going to be growing ethically. Does that mean we should assume that dividend should continue to grow even if the market is weakening or most of the pundits out there are talking about a weaker aircraft market? If you’re still booking assets and growing the asset base does that mean that dividend should still grow?

Ron Wainshal

To the extent we find new things to buy, then that’s probably a fair expectation. It’s going to have to be a quarter-by-quarter Board decision, but it’s going to be predicated on the level of incremental growth.

Scott Penn – JP Morgan

And, Ron, this is Scott Penn on behalf of Jamie. Given what you said earlier along the topic of the market being less frothy, do you see lease rates being affected by this? Or, what are your thoughts on them?

Ron Wainshal

Well, there’s a disconnect here, because demand for leased aircraft, remains really, really strong. We haven’t seen any dissipation of interest. In fact, with all the orders coming out of the Singapore Air Show, and Dubai Air Show, and all sorts of stuff in between, there really seems to be a nervousness among many airlines about losing what they have, because they know they’re not going to order anything new from the manufacturers for quite a number of years.

So the lease side of the equation is very good. The comment that I made was more to the transactional side of the market where the capital markets are more of an effect.

Operator

Your next question will come from the line of John Stilmar - FBR Capital Markets.

John Stilmar - FBR Capital Markets

The first question has to do, and it’s sort of along the lines of dividend, but capital structure in and of itself and with these incremental debt deals that you’re talking about. And you’ve given us certainly some framework with regard to thinking about pricing. But how should we think about the amount of leverage that you’re going to take on?

And is there a difference between what you can take on leverage, for instance, a debt to market value, versus what might be implied by the GAAP balance sheet leverage? And how do you think about where the capital efficiency of your company on a go-forward basis, given your stock price implies a pretty high cost of capital right now?

Michael J. Inglese

I think we’ve consistently looked at the business on sort of a 2:1 debt to leverage ratio which is where we are on a book basis. And it’s a little bit less than that when you factor in what we think is the market value of those assets. I don’t think we’re sitting here today contemplating any dramatic changes to that approach to the market, and we’ll continue to re-evaluate that as we go forward.

John Stilmar - FBR Capital Markets

In terms of the credit spreads, if you’re seeing low 7% and I assume the high end of your range, two year swaps are rated around, if I’m remembering correctly, about 3.5% and if I add the 225 basis points to that I get 575. And you’re now telling us that total all-in cost to finance on the debt side is around 7%.

Is most of that cost borne by the swap breakage fee that would be paid for getting out of the derivative contract? Or, is there something else?

Michael J. Inglese

Yes, that’s one way of looking at it. The way we think about the business is we have hedged our warehouse as we’ve bought assets and those hedges were done last year in the 5% interest rate environment.

And so we either will be breaking hedges and doing new hedges as part of the term deal or factoring, and rolling in existing hedges into the construct of a new deal. But, either way it’s sort of a 5%-ish net swap costs going into the new deal.

John Stilmar - FBR Capital Markets

Even at the low 7% you’re still happy with the acquisitions that you’ve chosen to make.

Ron Wainshal

Yes, we bought those assets with a very long-term view, many of those are aircraft where we’ve had a bump-up in the lease rents, and we like our portfolio very much.

John Stilmar - FBR Capital Markets

It looks like on a GAAP basis your tax rate went up. It looks like maybe you implied a tax accrual; I think it was 7.2%. What should we think about 2008 and maybe even 2009 for a tax rate for you guys, just on a GAAP basis?

Michael J. Inglese

I don’t think we have any information today that will give you a real precision. But I don’t have any reason to believe that it’s going to vary that much from the sort of 7% range that we’ve been looking at throughout the last few years.

Ron Wainshal

We’ve historically been in a 5% to 10% kind of range. And what causes the variability is really a mix of which types of aircraft we are buying, what jurisdictions they are in. I should just note that 5% to 10% was book; cash taxes were a little bit lower.

Operator

Your next question will come from the line of Rick Shane - Jefferies & Company.

Rick Shane - Jefferies & Company

How far off do you think pricing is in terms of acquiring assets from where you would like to acquire assets given the change in funding costs?

Ron Wainshal

What predicates the whole equation here is the cost of capital. And the cost of capital right now is, it’s hard to predict where that’s going to go and in what direction. So, the difference between what we’d like to get and what people are offering, really is all over the map.

And one of the things that is sort of the hallmark of this industry is that there is real opaqueness in pricing. You could do a deal for one aircraft one day at $30 million and the next, just about the exact same aircraft price at $32 million. And I think the delta is even broader today than it ever has been.

So I don’t know how to give you a precise answer. In some cases it’s interesting but my general view is that things will get softer anyway for a while, call it the second half, I mean it’s hard to put any precision around the capital markets today.

Rick Shane - Jefferies

Understood, and certainly we understand what’s driving the dynamic because it sounds like the demand for planes and the lease rates are staying pretty stable. So it’s a matter of hitting your hurdle rates as a function of your financing costs., I understand that it’s hard to put precision around that. But do you think we’re 5% off, 10% off, 20% off, just put it in some sort of ballpark please.

Ron Wainshal

Yes, I think it’s going to be all over the place by asset types. For new aircraft, I don’t think there’s going to be much of a softening. I don’t know maybe 5% is closer to if anything. What’s driving this more than anything else is first of all, there’s debt. The debt markets we had visibility on we’ve got some comfort about what that entails, the equity markets is a tricky part.

Operator

Your next question will come from the line of George [Goetz], private investor.

George [Goetz] – Private Investor

I was wondering what proportion, if any of the debt liabilities on the balance sheet are self-amortizing. Does any of the debt involve principal and interest payments or is it just interest payments involved?

Michael J. Inglese

Our two securitization structures entail payments for both interest and principal. Our warehouse facilities are by definition interest only, while there are outstandings, there is no fixed amortization for those facilities. But when we put the aircraft into more of a term deal, the securitizations have had amortization and we expect the new term deal that we are working on to have an amortization component as well.

Ron Wainshal

Yes, the amortization component on our term deals has historically been roughly at a constant loan to value. So as aircraft depreciate, the amount of debt that’s paid off is roughly in proportion.

Julia Hallisey

Thank you for joining us today, this concludes the Aircastle fourth quarter and year end 2007 earnings call. We look forward to speaking with you next quarter.

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: [e-mail]. Thank you!