Fly Leasing's (FLY) CEO Colm Barrington on Q4 2016 Results - Earnings Call Transcript

Fly Leasing Limited (NYSE:FLY) Q4 2016 Earnings Conference Call March 9, 2017 9:00 AM ET

Executives

Colm Barrington - CEO

Gary Dales - CFO

Steven Zissis - President and CEO, BBAM

Matt Dallas - Manager, IR

Analysts

Gary Liebowitz - Wells Fargo Securities

Catherine O’Brien - Deutsche Bank

Helane Becker - Cowen and Company

Andrew Light - Citi

Justine Fisher - Goldman Sachs

Jason Arnold - RBC Capital Markets

Bill Mastoris - Baird & Company

Scott Valentin - Compass Point

Operator

Good day, ladies and gentlemen. Welcome to the FLY Leasing Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instruction will be given at that time. [Operator Instructions].

I would now like to turn the call over to Matt Dallas. You may begin.

Matt Dallas

Thank you and good morning. I’m Matt Dallas, the Investor Relations Manager at FLY Leasing. And I’d like to welcome everyone to our fourth quarter and full year 2016 earnings conference call.

FLY Leasing, which we will refer to as FLY, or the company, issued its fourth quarter earnings press release, which is posted on the company’s Web site at flyleasing.com. We have a slide presentation that accompanies today’s call, which is available to participants on the webcast. If you are not accessing the webcast, you can find a copy of today’s presentation in the Investor Relations section of our Web site on the Presentations page.

If you are listening to both the live call and the webcast, you may want to mute your computer as there will be a slight delay in the webcast audio. Representing the company today on this call will be Colm Barrington, our Chief Executive Officer; Gary Dales, our Chief Financial Officer; and Steve Zissis, the President and CEO of BBAM, the company that manages and services FLY’s fleet.

This conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements regarding the outlook for the company’s future business and financial performance. Forward-looking statements are based on the current expectation and assumptions of FLY’s management, which are subject to uncertainties, risks, and changes in circumstances that are difficult to predict.

Actual outcomes and results may differ materially due to factors that are summarized more fully in the earnings press release and described in the company’s filings with the SEC. Please refer to these sources for additional information. FLY expressly disclaims any obligation to update or revise any of these forward-looking statements whether because of future events, new information, a change in its views or expectations, or otherwise. An archived webcast of this call will be available for 90 days on the company’s Web site.

And with that, I would now like to hand the call over to Steve Zissis, the President and CEO of BBAM. Steve?

Steven Zissis

Thank you, Matt, and welcome to FLY’s fourth quarter earnings call. First, I’d like to make some brief remarks on our industry conditions. Airlines around the world continue to report very strong earnings. Turkey remains a concern but FLY has minimal exposure there, around 5% of its fleet, and we’re likely to reduce our exposure further by transitioning a couple of aircraft out when those leases expire later this year.

We’re continuing to see strong demand for our aircraft evidenced by our 100% fleet utilization as well as by the fact that we only have four aircraft, all narrow bodies, left to remarket for the remainder of 2017. Those aircraft all come off lease in the latter part of the fourth quarter and we don’t foresee any challenges remarketing those aircraft.

Last quarter I mentioned that FLY was close to completing the disposition associated with its fleet renewal plan, which we launched at the end of the second quarter in 2015. I’m pleased to report that in the fourth quarter of 2016, FLY sold another eight aircraft bringing its total disposition since the start of the program to 68 aircraft.

To put that in perspective, FLY’s fleet as of June 30, 2015 stood at 129 aircraft…

Operator

Ladies and gentlemen, please stand by. You may resume.

Matt Dallas

I’d like to apologize to everyone. It appears our line was inadvertently disconnected. Steve, why don’t you pick up where you think you left of. Thank you.

Steven Zissis

So to put that in perspective, FLY’s fleet at June 30, 2015 stood at 129 aircraft. Essentially we turned over half of our fleet in 18 months while acquiring 15 newer aircraft over that same period. As a result, we have significantly transformed our fleet with younger aircraft that are under longer term leases with better earnings profile.

Besides transforming our fleet, we have also accumulated a significant amount of free cash while still making attractive acquisitions and buying back significant amount of FLY stock. At year end, we had over 500 million of free cash, a significant amount of borrowing capacity in our acquisition facility and 380 million of unencumbered assets. We are well positioned to act on attractive opportunities in 2017.

As you’ve heard from others, the sale leaseback market for new aircraft from top tier airlines remains very competitive. Last year, FLY acquired 10 aircraft for a total amount of 559 million. Virtually all these aircraft were sourced through BBAM’s global origination channels.

In 2017, we budgeted 750 million of new acquisitions. Once again, we promise to source only assets that meet our internal return hurdles and that positively contribute to net income and improve our return on equity.

I’d like to make a few comments about the $92 million pre-tax impairment charge that we recorded in the fourth quarter. While I recognize this is a significant number relative to FLY’s current earnings, over 90% of this charge or 84 million relates to two aircraft which we acquired in 2011 as part of the 49 aircraft GAAM portfolio.

We acquired these aircraft with attached non-recourse debt that exceeded our allocated purchase price. Even after the impairment charge, our shares continue to trade at a significant discount to book value as we believe the market has not fully appreciated FLY’s transformation nor recognized the value of FLY’s fleet or the value created by the relation BBAM has built over the many years with our airline customers.

As a result, we have embarked on an aggressive share repurchase program to return capital to our shareholders and because we recognize the inherent value in buying our shares at a significant discount to book value. We will continue that program into 2017.

Now let me turn the call over to Colm Barrington, FLY’s CEO.

Colm Barrington

Thank you, Steve, and good morning, everyone. Thank you all for joining us. FLY had several significant achievements in 2016, specifically our continued fleet rejuvenation program, sales of older aircraft, purchase of newer models and continued share repurchases.

As Steve mentioned, our GAAP financial results were heavily and negatively impacted by the non-cash impairment charge of $92 million on the….

Operator

Ladies and gentlemen, please stand by. You may resume.

Colm Barrington

Thank you for waiting everybody and sorry about this. I’m not quite sure what happened. Anyway, I’m going to resume.

As Steve mentioned, our GAAP financial results were heavily and negatively impacted by the non-cash impairment charge of $92 million on three older wide-body aircraft. Our adjusted net income on the other hand which excludes the impairment and other adjusted items was $79.3 million or $2.38 per share.

In the year, we completed approximately 10 aircraft with total investment of $559 million. While this investment was a little lower than the departure, we’ve acquired five quality assets, a significant contribution to our future earnings. We continue to employ a disciplined approach for our acquisitions ensuring that the economics for these acquisitions meet our financial and return criteria. We have passed on numerous opportunities that fall short of our return requirements.

At the same time, we sold 27 older aircraft at a premium to net book value. These sales further improved our fleet metrics and have generated further sales gains and liquidity. As Steve mentioned, at year end we had $580 million unrestricted cash and $380 million unencumbered aircraft giving us significant fire power to acquire additional aircraft as opportunities arise.

We also continued to repurchase our shares. During the year, we bought back 3.4 million shares for approximately $40 million. This represents approximately 10% of our shares outstanding at the start of the year and improved our adjusted net income by $0.16 per share.

Operationally, it was a very good year reflecting the help of the international aviation industry referenced by Steve. We’re close to 100% fleet utilization and our overdue lease receivables balance at year end and indeed throughout the year is at a manageable level.

As already mentioned, we invested $559 million in 10 aircraft during the year. These 10 attractive aircraft have an average of three years and they’re on leases with an average term of 10 years.

While enhancing our fleet metric, the long leases attached to these aircraft also provide FLY with average long-term income securities, a resultant annual pre-tax earnings of approximately $22 million would be highly accretive to EPS and ROE.

For 2017, we again have an acquisition target of $750 million. Using the global network of BBAM, we are continuing to pursue more aircraft acquisitions but will only complete transactions when the quality aircraft at subtracted prices and if the acquisitions are accretive to shareholder returns.

Our unrestricted cash balance of $580 million added to our 380 million of unencumbered aircraft and $272 million remaining capacity in our aircraft acquisitions [indiscernible] and current attractive jet [ph] markets gives FLY the financial capacity to acquire up to $3 billion of additional aircraft. We’ll continue to pursue and close aggressively to prudently.

In 2016, we sold 27 older aircraft in our fleet. These 27 aircraft had an average age of 14 years and were on leases with an average remaining term of three years, and these leases were principally less profitable. The 27 sales resulted in a total gain of $24.5 million. It was a 4.5% premium to our net book value. We also recorded a $2.7 million gain on the conversion of an operating leased to a finance leased.

The combined impact of our sales with acquisitions has had a significant positive impact on our fleet metrics. At year-end 2016, our average fleet age was 6.2 years, a reduction of nearly two years and 18 months since we started our fleet rejuvenation program. FLY now has one of the younger fleets of any aircraft lessor and the second youngest fleet of all aircraft lessors listed on the New York Stock Exchange.

Meanwhile, our average lease term has also increased significantly and stood at 6.8 years at the end of 2016, approximately 1% increase over 18 months. This long average term combined with our increasingly young fleet provides FLY with significant future financial security.

In 2016, we continued to execute on our share repurchase program acquiring 3.4 million shares during the year. These shares were purchased at an average price of $11.33 per share, a 36% discount to our post-impairment net book value of $18.39 per share at the end of 2016.

Since September 2015 when we started our aggressive share repurchases, we have bought back 22% of our shares at a 29% discount to net book value. At year-end 2016, FLY has 32.3 million shares outstanding. Shares are trading on an approximate 30% discount to our year-end net book value per share.

Our share repurchases will also continue to have a positive impact on FLY’s EPS and ROE in 2017 and beyond. We have $67 million remaining in our current share repurchase program and we expect to continue to repurchase shares in 2017.

With that, I’ll hand you over to our CFO, Gary Dales, to take you through the financial overview.

Gary Dales

Thank you, Colm. We are reporting a net loss for the fourth quarter of $63.8 million or $1.98 per share. For the year we are reporting a net loss of $29.1 million or $0.88 per share. These figures include a $92 million impairment charge recorded in the fourth quarter, which I will discuss further in a minute.

Our adjusted net income was $30.6 million or $0.95 per share for the fourth quarter and $79.3 million or $2.38 per share for the year. Our rental revenues for the year were $314 million. This is a decline from the prior year and flat to sale of 71 aircraft since the beginning of 2015. During 2016, we sold 27 aircraft and a gain of $27.2 million.

Total expenses for 2016 were $381.4 million, down approximately 12% from the prior year reflecting a fewer number of aircraft in our portfolio. The fourth quarter impairment charge relates to three older wide-body aircraft, two A340-600s and one A330-200. The two A340 aircraft were acquired in 2011 in the GAAM acquisition. The three aircraft represent the oldest wide-bodies in our fleet. We have no other A340 and this is the only A330-200 of fleet.

During our annual fleet review, we determined that the carrying values on our books for these aircraft need to be reduced to reflect the fact that we now expect these planes to be exposed of earlier than anticipated and at prices lower than previously forecast.

After these impairment charges, net book value of A340 are less than $25 million each and the A330-200 under $35 million. These amounts represent our current estimates of the fair value of these aircraft.

Also during the fourth quarter fleet review, the rest of our aircraft were evaluated for impairment and the older impairment was identified. This impairment analysis will also impact future depreciation amounts for these three aircraft as we are shortening their useful lives and in the case of the two A340s, reduce their salvage values.

We captured this in our Q1 2017 guidance which I’ll review in just a minute. As Steve mentioned in this introductory remarks, the A340s were acquired with attached non-recourse debt. The allocated debt balances for these aircraft are currently well in excess of our net book values. As a result, to the extent these aircraft were sold at prices below our then allocated debt balances, we will recognize a gain on debt expenditure.

Now let me cover a few items on guidance. For the first quarter of 2017, we are expecting operating lease rental revenue to be between $78 million and $80 million. We expect amortization of lease incentives to be between $1 million and $2 million. We do not expect any end of lease income.

Depreciation expense is expected to be between $32 million and $33 million and is up because of the additional depreciation on the A330 and A340. We expect interest expense between $31 million and $32 million. Selling, general and administrative expense will be between $7 million and $8 million.

Before I turn the call back to Colm, I want to call your attention to the appendices where we have our cap table and a reconciliation of our adjusted net income.

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

Colm Barrington

Thank you, Gary. 2016 was generally a positive year for FLY as we continue to rejuvenate our fleet and reduce our share count. We also have very positive operating results in virtually 100% of our fleet utilization and very positive leasing performance. We have also completed virtually all of our near-term leasing marketing and do not have any aircraft available for lease until towards the end of this year.

With that, we’re now ready for your questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from Gary Liebowitz of Wells Fargo Securities. Your line is open.

Gary Liebowitz

Thank you, operator. Good day. On the impairment charge, can you tell us what triggered the accrual now? The A340 market has been weak for many years. Just curious why – if you could talk about the timing of the charge.

Steven Zissis

Gary, as you probably know, we review our fleet annually for impairments and these aircraft, net all our impairments test under previous reviews. I think essentially two things have happened. One is particularly in the case of the A340s the future appraised values of the aircraft have declined quite significantly over the last 12 months. I think there’s now about 20% of this fleet is now being used right now. So that had quite a significant impact. Secondly, the lease terms have shortened because we’re a year more into them, so we have less leasing. These are relatively attractive leases so we had relatively good lease rentals from them. So when you take the present value of the lower future residual and the shorter lease term remaining, you got a present value that was in line – was less than our carrying value. And of course today’s appraise values in any event are lower than our net book value as we were holding these aircraft. So in combination with those factors, we did not meet the impairments test this year as we always have done in previous years.

Gary Liebowitz

Okay. And then also just following up on the impairment review, you had these three aircraft that failed the impairment test and all the others passed. Some companies disclose the number or the book value of the aircraft that they consider more susceptible to future impairments. I wonder if you have any such color around the rest of your impairment tests.

Colm Barrington

So we haven’t disclosed any other aircraft, Gary. As you know we have seven other wide-bodies in our portfolio; four 787, two 777 and one A330-300. Those seven aircraft are all less than three years old and were on leases under the remaining terms of approximately 10 years. So they’re well above any impairment testing. The range of our fleet is all narrow-body aircraft and these do not require any impairment either. As you know, we have now a relatively young fleet on relatively long-term uses as compared to any of the other leasing companies and so we do feel very comfortable with the remaining book values of our portfolio.

Gary Liebowitz

Thanks, Colm. And one last one. Can you just give us an update on the A320neo acquisition you’ve talked about before, when you expect that to close? And has that schedule changed since we last spoke three months ago?

Steven Zissis

Gary, this is Steve. That is still under discussion because of a delay on the GTF engines. So that’s going to be picked up again in early part of 2018. That is not a '17 transaction for us, if it goes ahead at all. We’re still discussing whether it makes sense or not.

Gary Liebowitz

Okay. Thank you very much.

Operator

Our next question comes from Catherine O’Brien of Deutsche Bank. Your line is open.

Catherine O’Brien

Good morning, gentlemen. So at ISAT [ph] earlier this week, we heard from one of the panels that while 10 to 12 months ago it looks as if we might see lease rates improve around June that trend reversed and hasn’t improved since. And in addition, that sale leaseback lease rates are under more pressure than aircraft order books and I was just wondering, is that consistent with what you’re seeing? And if so, are you still interested in doing some NEO and MAX sale leasebacks as you did last quarter?

Steven Zissis

Yes, in general we’re still looking at NEO and MAX sale leasebacks. Some of the transactions that we’re considering are very competitive and don’t make sense for our internal hurdle rate returns. But there are a couple of transactions out there that seem to work for us and we haven’t signed them up yet but we’re getting closer. In general, I would say secondary remarketing of used equipment is actually holding up much better than we expected and we’re actually seeing lease rates on used 800s starting to move up again. There does seem to be a shortage of 800s available in the marketplace and the 320 seems to be steady state right now. On the placement of new NEOs and MAXs, as you know, we do not currently have an order book or even plan to have an order book. So we really couldn’t give you any insight into that market.

Catherine O’Brien

Okay, great. And then I think you gave some color on last call that you just hadn’t found enough deals in 2016 to meet your $750 million target, but you’re again targeting $750 million this year. And it sounds like there could be upside to that if you found enough deals. Have you seen any changes in the market that lead you to believe that this year will be a better market for buyers?

Steven Zissis

Not really. It’s still very competitive. I think there are a few things going on out there that it may suggest that some of the capital will pull back. And if it does, we are in a pretty strong position to take advantage of a correction in the marketplace. So we’re still waiting to see if something like that will happen.

Catherine O’Brien

Okay, great. And just one quick follow up, if I may. Is some of that news you’re talking about maybe some increased capital controls out of China decreasing the competition or --?

Steven Zissis

Absolutely that’s one of them. Also the possibility of a few airlines perhaps restructuring in the near future might present some opportunities. As you know on the last call, I mentioned that one thing to keep your eye on is the strength of the dollar. And the appreciation of the dollar in some of these emerging markets, especially for the low cost carriers, has further cash flow. And as a result of that I think there will be more opportunities to do sale leasebacks or financing transactions with some of those airlines. So we’re keeping our ear to the ground. We think there will be some opportunities coming up in the near term. But it’s probably – we’re still a quarter or two away from really seeing that opportunity.

Catherine O’Brien

Thanks so much for all that color.

Operator

Our next question comes from Helane Becker of Cowen. Your line is open.

Helane Becker

Thanks very much, operator. Hi, guys. I just had a couple of questions. One of the things that we heard also at ISAT was that one of the Chinese lessors said that they did some – raised $200 million through crowd-funding. So we’re talking about hopefully some improvement in the market but it seems like a lot of money is still chasing these deals. And I’m just kind of wondering is, it won’t remain competitive or perhaps even get worse?

Steven Zissis

If a Chinese lessor did crowd-funding, then I would say we were right in the asset class. For the last 10 years, everybody has shown the asset class and now everybody wants to be in it. So it’s pretty interesting. I don’t know. From what we see, definitely the Chinese are a bit less active this year than prior years. And there is a lot of talk about capital controls and kind of paring back their appetite for aviation. So I think eventually it happens that they will pull back, but look capital is free in this world. So when capital is free, everybody throws it around.

Helane Becker

Fair enough. On the returns, are you expecting them to improve or – because I’m trying to figure out how you will achieve the same level of expected return in the market if returns don’t improve on a year-on-year basis?

Steven Zissis

Look, we’ve always said we’re not going to grow for growth sake. So if we find the opportunities to deploy our capital and what we think are accretive and cash positive yields, we’re going to do it. If we can’t then we have two choices; either to continue to buyback our stock or even take the company private. Those are the options out there. We are not going just to growth for growth sake. We’ve always said that to our shareholders and we remain that view.

Helane Becker

Okay, that’s really fair. Thank you very much.

Operator

Our next question comes from Andrew Light of Citi. Your line is open.

Andrew Light

Hi, good morning. Do you expect to make any significant disposals this year or are you done after your fleet renewal program?

Colm Barrington

Andrew, I don’t think we’ll have any huge number of disposals this year. As you know, we’ve been working hard on it. We’ve disposed of a huge number percentage of our aircraft. Most of our older aircraft are now gone. So I don’t think we’ll see any significant disposals. We might see some opportunistic sales from time-to-time where we find a very willing buyer, but as I said I don’t think it will be any huge number.

Andrew Light

Okay, thanks. Can I just ask a follow up question on adjusted net income? You seem to exclude impairments but include gains. Are you satisfied that that’s an appropriate measure, particularly given I think IFRS pressures to our end reporting with adjusted figures?

Gary Dales

Andrew, this is Gary. Yes, on the – if you adjust our A&I for impairment and we have not adjusted the gains on sales, we’re very cognizant of where the SEC has been coming and at least for right now we decided to remain consistent with how we’ve been presenting adjusted net income. As you know, there is not any specific rules on how it should be presented. I think it gives a good representation of how our operating results should be viewed.

Colm Barrington

I think the essential difference [ph] was due, Andrew, is that sales are cash sales and generally cash from the sale has been termed as a non-cash charge.

Andrew Light

Right. But do you have a situation there where you generated a gain on sale on a, I don’t know, previously impaired aircraft or does that – has that not happened?

Gary Dales

I don’t believe that’s happened.

Colm Barrington

That’s been very rare. As you know, we hedged in the past on some transactional impairments where we tend to write-down an aircraft to its estimated selling costs and there was potentially some immaterial balances [ph] between what the actual sales price was but we don’t really have gains that would be recognized on previously impairment costs.

Andrew Light

Okay, great. Thank you very much for that.

Colm Barrington

Thank you.

Operator

Our next question comes from Justine Fisher of Goldman Sachs. Your line is open.

Justine Fisher

Good morning.

Colm Barrington

Hi, Justine.

Justine Fisher

The first question I have is on just a follow up on the issue of Chinese capital, because I know it’s a huge focus for people that I’ve been talking to in terms of tail risk in the market. So when you guys say that you are seeing decreased activity, could you give us a little bit more color of tangibly what that is? Are you seeing fewer Chinese bids in the sale leaseback business that you might be looking at? What are the tangible signs of lower activity or is it just an expectation that you think capital controls will eventually have more of an impact?

Steven Zissis

I think the two places that we see, Justine, is on the sale leaseback bids, we see less Chinese showing up on those RFPs than we have in the past. And then on a couple of aircraft portfolio and one-off trades from lessors we’re also seeing less activity in that market. It’s just our feel of the marketplace, it’s not what we actually count how much capital is still in each of these deals. It’s not very scientific.

Justine Fisher

Okay. It seems as though it would be difficult for that to be driven by margins not making sense because we know that the cost of capital for Chinese players is relatively low. So it can’t be that they are just turning away from the market because the margins don’t meet their requirements. So it would seem to be something else as you said previously, like capital controls or something like that. Is that what your sense is?

Steven Zissis

Yes, that would be our guess also.

Justine Fisher

Okay. And then a couple of other questions on the balance sheet. Number one, I know you said that you could take the company private but you guys are been buying back so many shares that it seems to be kind of slowly happening anyway. And so is there a place for using some of that cash to repay debt? I mean if you say – if you want to stop short of basically taking the company private by buying back so much stock, is there a place to delever the balance sheet, or do you feel as though you wouldn’t really gain a benefit from that either in the stock market or from the rating agencies or anything because your leverage is fine where it is and there is not really a great reason to do that?

Colm Barrington

I think two things; one is we see that leverage is fine. A lot of our debt as we know is secured debt and the maturities are relatively long and match the term of our leases. But we do have some unsecured debt where we are unable to provide exact [ph] essentially or economically debt. So as of now we don’t see there’s much point in trying to use our cash to repay debt. We also believe that it’s better for us right to buying shares and then to buying aircraft. We didn’t meet our 750 million target last year, we did close to 600 million and we’re hopeful we can meet the target this year. So we are keeping our cash to buy shares and aircraft potentially because we feel that running the company and growing the company sensibly and reduce the share count are the two best ways to do shareholder returns.

Justine Fisher

Okay, thanks. And then the last question I have is also kind of related to FLY’s position in the industry. I know that there is a FLY BBAM relationship and so in some ways because FLY can benefit from that relationship, it’s part of a bigger lessor, so it’s not – I wouldn’t necessarily look at FLY in a vacuum as a lessor of its size. But do you think that there is a place in the market over the next five years for a lessor the size of FLY alone, like FLY ex-BBAM? Do you think there is a place for kind of a smaller book value sized lessor, sub $5 billion, let’s say, or do you think that as the industry grows and consolidates so too must smaller lessors?

Colm Barrington

I certainly think there will always be a place for niche players in our markets, people dealing with midlife aircraft, people dealing with older aircraft, people dealing with part-out aircraft, people who are trading aircraft. So I think there will always be a place for small and niche players. I think you’re right. As a public lessor I think FLY requires the scale of BBAM. As you know, BBAM has the current largest aircraft lease manager in the world and we’ve got a large team of people spread around the world. So FLY benefits from all of that. So our size doesn’t really hurt us right now. Obviously we would like to grow the company and I think that would give us a better chance of getting a better rating, for example. But as of now we have the operational efficiencies in BBAM, so our size it not a problem for us from an operation point of view.

Justine Fisher

And if you didn’t have the BBAM relationship, just kind of commenting on the market, do you think that a lessor of your size, ex-that relationship, it would be difficult to compete?

Colm Barrington

I think any smaller leasing company of less than 100 planes with its own internal management would have difficulty competing if you’re trying to be a lessor of a relatively new aircraft and build a basis, yes.

Justine Fisher

All right. Thank you guys for the time. I appreciate it.

Colm Barrington

Thank you.

Operator

Our next question comes from Jason Arnold of RBC Capital Markets. Your line is open.

Jason Arnold

Hi, guys. I was wondering if you could comment on fleet adds to-date in the first quarter or any expected here over the near-term?

Colm Barrington

Jason, let Steve [indiscernible] for a minute, I think he didn’t hear the question. You’re asking have we added any aircraft in the first quarter and have we any near-term transactions underway.

Jason Arnold

Correct.

Colm Barrington

We have not added any aircraft as of today in the first quarter and we actually don’t comment normally on future acquisitions until we actually contract them. So we don’t actually have any completion acquisitions or contracted acquisitions as of now.

Jason Arnold

Okay. Thanks for that. And then, Gary, I believe you mentioned debt gains were possible on the impaired GAAM aircraft if they were sold. So I was just curious if you could give us a little bit more color on how that works and if you were to sell them today, what sort of size of gain would that be, any color there?

Gary Dales

Well, I can tell you that today the debt associated with the two A340s is around $100 million, but they’re not the only aircraft associated with that facility. So it is – look, we don’t have a precise figure when they actually are disposed of. We will recognize likely a substantial gain on the payment and retirement of that debt.

Jason Arnold

Okay, super. Thanks for the color.

Operator

Our next question comes from Bill Mastoris of Baird & Company. Your line is open.

Bill Mastoris

Thank you. I’d like to follow up a little bit on Justine’s question. Gary, or I should say Colm, you indicated that leverage is okay right now but I’m wondering if you did go private, how far would you be willing to stretch that balance sheet? And I knowledge the frustration that you’ve had with your stock, but with current leverage pretty high and the prospect for may be increased leverage, what’s kind of your tipping point? And I do have a follow up.

Colm Barrington

Yes, well I think we’ve said that we’re happy to keep our leverage in the 3 to 4 times equity range. I can’t see much why we would want to extend that if in the unlikely event the company would go private. So I can’t see much change in that what might happen down the road. But as of now, I can’t see any reason to change our leverage.

Bill Mastoris

Okay. And then the quick follow up I have, in the past you’ve mentioned that the unencumbered asset base, that 750 million was a reasonable target and maybe even $1 billion and you’re currently sitting at 380 million. Is that kind of a change in thinking for you or is this just kind of a blip and we might expect that unencumbered asset value to actually rise over the next several quarters?

Colm Barrington

I’m not conscious of the $1 billion figure but obviously we’d like to keep our unencumbered asset base reasonably low just to fall within the amount of unsecured debt we have in the company. So I think we’re reasonably comfortable where we are. It might go up or down a little bit, but I can’t see any significant change in the short term.

Bill Mastoris

Okay. Thank you very much.

Colm Barrington

Thank you.

Operator

Our next question comes from Scott Valentin of Compass Point. Your line is open.

Scott Valentin

Thanks for taking my question. Just on the buyback, it looks like the pace slowed quite dramatically in the fourth quarter. I’m just wondering if that was due to the pending impairment or is it leverage constraint. Just wondering as to why the pace – I was looking at about 200,000 shares in the fourth quarter. Just wondering why it slowed down so much.

Colm Barrington

We’re restricted by the programs we get into, Scott, and we’ve set our targets within the fourth quarter and have to stick with them. So the share price was up a bit more than expected and therefore we were buying less shares that we would have liked.

Scott Valentin

Okay. And then your reference to – I think it was Steve who mentioned it’s basically – look for accretive transactions, buying aircraft, buyback stock or go private. So right now I think you have $67 million approved in the current buyback. Assuming the pace of aircraft acquisitions are kind of what they were in '16, so say 550 million, I assume then you could do the full $67 million and potentially reload. Is that possible?

Colm Barrington

Yes, because we have all this cash and we can leverage that from the previous question to 4 times to 1. So that’s why we mentioned that we have the capacity to buy up to $2 million worth of aircraft and therefore that will not have an impact on the $67 million in our share repurchase program.

Scott Valentin

Okay. And then just looking at credit, I think Steve mentioned Turkey is a concern. Are there any other regions that you guys are concerned about or seeing any issues with? I think Steve also mentioned low cost carriers maybe being challenged by the strong dollar. Just wondering what you’re seeing in terms of credit.

Steven Zissis

So far things seem relatively stable. But if you go across the globe and you look at how fast the dollar has appreciated over the last 12 months, there are countries that pop out at you, right, and obviously Turkey is one of them; Brazil, and other parts of Latin America, Mexico, Indonesia, Malaysia. So you got to keep your eyes on all these guys, especially the low cost guys that get the majority of their revenue in local currency. The legacy guys and the international carriers tend to have a big chunk of the revenue in foreign currency dollars and other currencies that are not affected but some of the low cost guys are definitely feeling the pinch.

Scott Valentin

Okay, all right. Thanks very much.

Operator

There are no further questions. I’d like to turn the call back over to Matt Dallas for any closing remarks.

Matt Dallas

Thank you very much everyone for joining us today. We look forward to speaking with you again next quarter. You may now disconnect.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a great day.