Fly Leasing Limited (FLY) CEO Colm Barrington on Q1 2018 Results - Earnings Call Transcript

Fly Leasing Limited (NYSE:FLY) Q1 2018 Results Earnings Conference Call May 3, 2018 4:30 PM ET

Executives

Colm Barrington - Chief Executive Officer

Julie Ruehl - Chief Financial Officer

Steve Zissis - President, Chief Executive Officer of BBAM

Matt Dallas - Investor Relations Manager

Analysts

Helane Becker - Cowen

Catherine O’Brien - Deutsche Bank

Gary Liebowitz - CompassPoint

Scott Valentine - Compass Point

Jamie Baker - J.P. Morgan

Justine Fisher - Goldman Sachs

Operator

Good afternoon ladies and gentlemen and welcome to the FLY Leasing, First Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Matt Dallas.

Matt Dallas

Thank you and good afternoon. I am Matt Dallas, the Investor Relations Manager of FLY Leasing and I’d like to welcome everyone to our first quarter 2018 earnings conference call.

FLY Leasing, which we will refer to as FLY or The Company issued its first quarter earnings results press release which is posted on the company’s website 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 website on the Presentation’s 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; Julie Ruehl, 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 current expectation and assumption of FLY’s management, which are subject to uncertainties, risks and changes in circumstances that are difficult to predict.

Actual outcomes and results may differ materially due to factors that are summarized in the earnings press release and are described more fully in the company’s filings with the SEC. Please refer to these sources for additional information. An archived webcast of this call will be available for one year on the company’s website.

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

Steve Zissis

Thank you, Matt and welcome to FLY’s first quarter earnings call. Let me start with the industry conditions which remained stable since our last call. After spending the last few weeks travelling around the world to meet airline customers and manufacturers, I can attest that the key drivers to our industry, passenger demand and bookings, airline profitability, global economic health and aircraft supply are all trending positively.

Airlines globally are reporting healthy earnings and record load factors combined with growing optimism of forward bookings. IATA's global net profit for the industry in 2018 is forecast at over $38 billion with air travelling growing around 6% worldwide for the year. More importantly, many of our key emerging markets, Southeast Asia and India are on track to grow much faster than that. As a result, we're seeing strong demand from our customers for new and used aircraft. The current engine issues affecting some of the new aircraft models are also driving up demand and lease rates for our aircraft coming off lease.

Our long term industry fundamentals remain intact. We are monitoring rising oil prices and interest rates. At this point, we don’t see either of those factors materially impacting our 2018 performance or disrupting industry fundamentals. AirAsia is progressing and getting their shareholder approval later this month and still expect the first aircraft to be a acquired by the end of the current quarter with the remainder of the initial portfolio of 34 aircraft and 7 engines closing in the third quarter.

As I mentioned on previous calls, I think this transaction is a game changer for FLY as it will not only immediately increase our fleet by 34 aircraft, improve ROE and grow EPS, it will give us actions to stream of up to an additional 41 brand new Neo aircraft beginning in 2019 and over several years without having to expend valuable capital on PDPs to the manufacturers.

As part of the AirAsia portfolio acquisition I'll also mention that we've embarked on a sales program to manage concentration risk and to lower our leverage ratio. Our initial sales target for this year is 150 million with a further 150 million in 2019. While it's too early to provide any definitive feedback we are receiving a lot of interest from the lessor community around the world.

To be sure, we similarly saw positive response from lenders in sourcing committed debt to finance the acquisition of the bulk of the initial portfolio. It goes without saying that I remain disappointed where FLY's stock is trading in light of the transformative AirAsia announcement. As we mentioned before, AirAsia will acquire 50 million of FLY's shares at $15 per share. BBAM's management team and Onex also have agreed to acquire $20 million of FLY shares at the same price.

After this purchase, BBAM's stakeholders will own 17% of FLY stock. While I can't control FLY's daily stock price, I remain committed to improving FLY's ROE and growing its EPS over the long run. As you'll hear from Colm and Julie as they review our Q1 results and present our full year guidance you will see the progress we've already made and how the AirAsia transaction will be a key driver and delivering on this promise.

Now, I'd like to turn the call over to Colm Barrington, FLY's CEO.

Colm Barrington

Thank you, Steve and thank you everyone for joining us on this call. I hope that our later timing is as convenient to you as our normal morning calls. We're pleased to report a solid quarter for FLY while we continue to complete the formalities of our AirAsia portfolio acquisition. Our quarterly operating lease rental revenue has grown by 12.3% as compared to the same period in 2017. This revenue improvement has been reflected in a significant growth in our quarterly net income to $9.6 million. This improvement in net income reflects the strong performance in our core leasing business and provides a solid base to support the growth that we have now contracted.

The growth in EPS has been even stronger reflecting both the improved net income and significant share repurchases completed in 2017. Our EPS of $0.34 is more than double the results from the same quarter last year. As we move through the year, selling aircraft, recognizing significant end of lease income from transactions already completed, and utilizing our available capital, we expect to see further increases in EPS and in order [indiscernible]. We achieved a 99% fleet utilization in the quarter. The second aircraft that we repossessed from Air Berlin last year was delivered to a lessee in April, so all our aircraft are currently on lease.

Meanwhile as Steve mentioned, the AirAsia transaction is progressing as expected. AirAsia's extraordinary general meeting to seek shareholder approval for the transaction is scheduled for May 14. Two of AirAsia's major shareholders already announced that they will support the transaction and so we're optimistic that shareholder approval will be achieved. Subject to this approval we expect that the initial 34 A320-200 aircraft and the seven CFM 56 engines will be transferred to FLY in the second and third quarters. Instantly there are no other third-party approvals required or outstanding.

As we begin acquiring these aircraft and deploying our capital, including some of our $384 million of unrestricted cash we expect to see FLY report very strong shareholder returns over the course of the year. As Steve mentioned, the acquisition of this large portfolio would be a real game changer for fly as it provides us with an immediate increase in and a strong growth pipeline of new technology aircraft that are in short supply.

We expect to acquire the initial portfolio during quarters two and three. All but one of the 34 aircraft will be leased to five airlines within the AirAsia group. But in this context it is worth noting that while all five airlines benefit from the AirAsia brand and franchise, they are five separate corporate entities operating in five separate countries; India, Indonesia, Malaysia, Thailand and the Philippines, all high growth areas.

Three of the airlines are listed companies on exchanges in their own countries with the AirAsia group having a minority stake in each. We expect to begin taking delivery of the first of the 21 A320neo family aircraft equipped with CFM LEAP engines that comprise a second portfolio starting next year. These 21 aircraft will be delivered with 2019 and 2021 and will be leased to airlines within the AirAsia group. These aircraft will continue FLY's transition towards the latest generation of narrowbody aircraft that we have anticipated for some time.

The third portfolio provides FLY with the option, but not the obligation to acquire 20 additional A320 family aircraft starting as early as 2019. These aircraft may be leased to airlines within the AirAsia group or to third-party airlines. The availability of these option aircraft provides FLY with the option to grow our fleet further or not, depending on how market conditions develop over the next few years. If current favorable market conditions persist, it is likely that we will choose to exercise some role of these options. However, it is strategic to have the ability to let them go to huge conditions in both the leasing and financing markets not allow us to meet our return requirements.

The initial portfolio will be financed with a combination of FLY's unrestricted cash, $70 million of newly issued shares at $15 per share, approximately $580 million of committed staple financing and approximately $90 million compiles FLY's existing aircraft acquisition facility. The terms of these third-party financings are particularly attractive. The staple financing carries an anticipated interest rate of LIBOR plus a margin of 1.725% and our aircraft acquisition facility has an interest rate of LIBOR plus a margin of 2%.

Of the $70 million of new shares to be issued, $50 million will be issued to AirAsia at $15 a share and as Steve mentioned additionally BBAM's management team and Onex will acquire further 20 million of FLY shares at the same price. These share issuances are the premium of more than 15% to FLY's current share price and again as Steve mentioned BBAM's shareholders will continue to be FLY's larger shareholder and remain committed to unlocking value for FLY.

To complete this transformational acquisition, FLY will increase its leverage temporarily. We expect leverage to peak at about 4.9 to 1. However, due to a combination of contracted amortization in our secured financing and expected sales, we expect leverage to reduce to closer to 4.4 to 1 after a year and to 3.5 to 1 within three years.

FLY continues to buy and sell aircraft in our normal course of business. In the first quarter we purchased one new Airbus A320 and that's on a 12-year lease. We have sold two aircraft so far in quarter two. These aircraft have an average age of just over 10 years. These sales have generated 16% premiums net book value and will reduce leverage prior to commencing the new portfolio acquisitions.

We plan on completing total sales with the new portfolio later in the year to reduce exposure to the AirAsia group airlines before we start acquiring the A320neo family aircraft next year. These sales will also reduce leverage towards our target levels. There is currently only minimal AirAsia exposure within the global leasing community and as Steve mentioned we are already seeing strong interest in these assets.

With that, I'll hand you over to our CFO, Julie Ruehl for our Q1 financial overview. Julie?

Julie Ruehl

Thank you, Colm. FLY is reporting net income of $9.6 million or $0.34 per share for the first quarter of 2018. This compares to net income of $5.1 million or $0.16 per share in the year ago quarter. Our adjusted net income in Q1 was $12.4 million as compared to a revived $5.9 million in the prior year quarter. On a per share basis adjusted net income was $0.44 in Q1 2018, more than double Q1 2017 adjusted EPS of $0.18 on a revised basis.

We revised our definition of adjusted net income this to simplify the presentation and align more closely with the metrics reported by our peers. Please refer to the appendices at the back of the presentation for a reconciliation of our adjusted net income.

Turning back to FLY's operating results for the quarter, our operating lease rental revenues in Q1 increased more than 12% to $89 million due to the growth of the fleet to 86 aircraft at quarter end. We are very pleased with the trend and consistency of our operating lease revenues over the past few quarters.

When comparing expenses to the prior year quarter, depreciation and interest expense are both up due to the growth of FLY's aircraft portfolio. SG&A expenses for the quarter include approximately $500,000 of transaction related third-party professional fee expenses related to the AirAsia portfolio acquisition as well as $400,000 of unrealized foreign exchange losses.

Also in Q1 2018 we recognized a $1.6 million unrealized mark-to-market loss related interest rate locked contracts entered into to partially hedge the AirAsia portfolio acquisition cost. This is included in loss on derivatives on the income statement.

Now I'd like to cover our guidance for Q2. Given that the AirAsia aircraft acquisitions will occur over time and the exact timing is uncertain our guidance assumes that the initial portfolio acquisition does not occur in Q2. For the second quarter of 2018 we are expecting operating lease rental revenue of $88 million to $89 million.

We expect amortization of lease incentives of $2 million to $3 million. Gain on sale of aircraft is expected to be approximately $3 million. Note that two of three aircraft sales forecasted for Q2 have already been completed. We expect end of lease income of $12 million to $15 million. Depreciation expense will be between $34 million and $35 million. We expect interest expense of $34 million to $35 million.

Maintenance and other costs will be approximately $1 million. We expect SG&A expense of $8 million to $9 million without consideration of any foreign exchange gains or losses that may occur. Note that included in this range are approximately $1 million of AirAsia transaction cost consisting primarily of third-party legal and professional fees.

Next, I would like to provide some high level full-year estimates for fiscal 2018. Although we typically did not provide guidance beyond the next quarter and do not intend to do so on a recurring basis, given the significance of the AirAsia transactions we felt that it would be helpful to provide more color around our prior remarks regarding impact of the transactions to FLY.

As I mentioned earlier, we do not have clarity at this time regarding the exact closing dates of the AirAsia aircraft acquisitions and as a result we expect to refine these estimates as the year progresses. The full-year estimates assuming the initial portfolio transferred over the course of Q3 these estimates do not include any gains from aircraft sales expected following the acquisition of the initial portfolio as we do not have visibility into the timing and magnitude of such sales at this time.

For the full-year 2018 we are estimating operating lease revenue of $405 million to $410 million. Financings revenue and other income is expected to be approximately $3 million. Gain on sale of aircraft is estimated to be $3 million, again this does not include any potential gains from AirAsia portfolio aircraft sales.

Total expenses are estimated to be $335 million to $340 million. Pretax net income is estimated at $75 million to $80 million. As I indicated a moment ago, our 2018 expense estimates includes some AirAsia transaction costs consisting primarily of legal and professional fees. As noted on the slide we expect contracted annual operating lease revenue of over $460 million following the completion of the initial portfolio of acquisition assuming no AirAsia aircraft sales.

Now I'll turn it back to Colm for his closing remarks.

Colm Barrington

Thank you, Julie. Well, I hope that you will have seen from our presentation this afternoon that FLY is really on the move. Our strategy over the last few years of selling older and less profitable aircraft, acquiring aircraft only when they meet our stringent rate of return criteria and undertaking significant share repurchases or maintaining financial dry powder is really bearing fruit. We look forward to our next call where we will provide a further update on the execution of our strategy.

With that, we are now ready to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from line of Helane Becker. Your line is open.

Helane Becker

Thanks very much operator. Hi everybody. Thank you so much for the time. So, I know you can't give us a lot of guidance on the progress you're making on talking to other lessors about aircraft in general. But aside from the specific AirAsia aircraft two questions, one is, are you seeing more demand for your midlife aircraft? Then you maybe thought you would see or is it more in line with what you were expecting?

Colm Barrington

Steve, would you like to answer Helane on that?

Steve Zissis

Sure. Helane it's Steve. The way I would characterize the market is that it continues to be short of aircraft, so it is a seller's market. There's new capital entering the space almost on a weekly basis and we see no shortage of demand for midlife aircraft across the spectrum. So anybody who's long aircraft is in my opinion sitting in the captain's seat.

Helane Becker

What are you seeing in terms of either praise or lease rates? I mean are you seeing the demand bid up the price of aircraft which you would, you would normally see in a strong market, right? And I'm just kind of wondering if you're seeing that.

Colm Barrington

Right, if your question is, are we seeing prices increase on midlife aircraft with fixed lease rates, the answer is definitely yes right. We're seeing demand almost across the board for people who want to get exposure to aircraft and so there is no lack of bidders out there for almost any type of aircraft, whether it's midlife, end of life, new aircraft. Like I said it is a seller's market and it surprised me how strong it's been for the last three years and we see no softening of that demand at all.

Helane Becker

Is it rid, I mean are you seeing more, like are there any regions that are more in demand than others or is that kind of across the board?

Colm Barrington

No it's pretty much across the board right? You've got various pockets of Asian capital both in the new staff and also in the midlife. You have a lot of demand from AVS [ph] buyers, you have a lot of new midlife funds that want to get exposure to the industry. So we're seeing demand for all our craft at almost historical high. So I'm kind of scratching my head while the public space doesn't trade at a much higher multiple giving just a shortage of product out there.

Helane Becker

Yes, I can't answer that question, but I wonder the same thing from time-to-time, but it's okay. All right, thank you very much.

Colm Barrington

Yes, thanks Helane.

Operator

Your next question comes from the line of Catherine O’Brien. Your line is open.

Catherine O’Brien

Good afternoon, everyone. So given your comments in response to Helane’s question, I'm guessing that remaining campaigns you have on marketing aircraft this year, may be going better than you expected. I think last quarter and today Steve, you mentioned that the leasing environment was really strong on used aircraft? And then I guess maybe this is a follow up to that, do you see that strength on lease rates for these aircraft is that broad based or do you really think it's more focused on narrow-bodies given delivery delays in the OEMs?

Steve Zissis

Yes, look good question. Maybe I should preface the answer by saying we don't have a lot of wide-body, so on the public can't give you a good view on really what's going on in the wide-body market. FLY is primarily a narrowbody lessor and I could tell you that on all our budgetary marketing for 2018 the majority has come on above budget. So it's indicating that either the market is strong and the lease rates are affirming or trending upwards.

Catherine O’Brien

That's great. And then let's see, so following that May 14 shareholder meeting will you guys be immediately alerting the markets results of that? And then I realized that the June Q guidance you just wanted to play it safe, and that's why you weren't building in the AirAsia aircraft there, but should we assume that the majority if not almost all of those aircraft should come in the September quarter and is there any risk that some of them could transition in the December quarter?

Steve Zissis

Catherine, I think it would – we would certainly, we'll be happy I think the AirAsia, there was also AirAsia shareholders meeting will be generally widely known, but we'll certainly be happy to confirm this. We expect the deliveries to start almost immediately afterwards and certainly in June and we're hoping we'll do them all by the end of September. And we're actually hoping we can get them in a lot earlier than that, but we're just being a little bit cautious. Just picking up from something that you said though, why we're not forecasting any AirAsia sales in that guidance for the year that Julie gave you, we are assuming that the AirAsia aircraft will be in as leasing asset in the range of the year.

Catherine O’Brien

Oh yes, sorry, I meant the June quarter guidance really as I was hopping a bit back and forth…

Colm Barrington

Okay, got you, yes.

Catherine O’Brien

Thanks, Colm.

Colm Barrington

Okay.

Catherine O’Brien

And that’s it from me. Thanks.

Colm Barrington

Thanks Catherine.

Operator

Your next question comes from the line of Scott Valentin from CompassPoint, sorry Gary Liebowitz. Your line is open.

Gary Liebowitz

Hi guys. It’s Gary Liebowitz.

Colm Barrington

Hi Gary.

Gary Liebowitz

Hi, so you have your projected debt to equity ratios within three years going down to 3.5 times. Can you just review for us what the underlying assumptions are for aircraft purchases other than the AirAsia aircraft and for aircraft sales, are you assuming a $150 million of sales in that number and no other CapEx besides AirAsia?

Colm Barrington

Julie, would you like to take this one?

Julie Ruehl

Yes, sure. That is correct Gary, that we are assuming $150 million of annual sales for a couple of years related to AirAsia aircraft, also factors in significant scheduled amortization of debt. We don't have any additional CapEx in 2018, but potentially 2019 and beyond we have CapEx beyond the sale and lease back portfolio.

Gary Liebowitz

Also though there is additional CapEx built into that 3.5 times number within three years?

Julie Ruehl

Yes.

Colm Barrington

Yes, I mean, we're talking about portfolio, the second portfolio of the 21 A320neo Gary?

Gary Liebowitz

Yes.

Colm Barrington

Four are scheduled in 2019, six in 2020 and 11 in 2021.

Gary Liebowitz

Okay, also I guess just definitely can you just give an update on your customer watch list and perhaps on the H&A affiliates they're paying?

Colm Barrington

Steve, would you like to head this one?

Steve Zissis

Sure, I mean the best way to characterize it is that there are still [indiscernible] with us, but are trying to get on top of the situation. It's showing some positive steps recently. And we're quite comfortable that they will resolve the situation there as they sell some of their smaller airlines off and get access to bank financing. So we're probably more relaxed and more or less noise about it. But look to a certain extent a lot of that is a black box over there, so we don't have full visibility, almost going on, but for the most part we're comfortable with our exposure there.

Gary Liebowitz

Thank you very much.

Operator

Your next question comes from the line of Scott Valentine. Your line is open.

Scott Valentine

Thanks very much for taking my question. Just I know you provide the pretax income number, I'm just wondering, I think in the past we've used 15% as kind of the tax rate going forward, just wondering if there's any reason to change that assumption going forward because of the areas of transaction that the revenue streams in different geographies changes the tax rate going forward?

Colm Barrington

Julie, would you like to comment?

Julie Ruehl

Yes and we have been closer to 20% prior to AirAsia and we believe post AirAisia that will be closure at 17.5% effective rate. And just to keep in mind that we, I mean we're not changing a lot of jurisdictions with AirAsia because we're still going to - the aircraft will be owned in Ireland, so still be at a low tax rate and although we haven't typically been a cash tax payer and don't expect it to pay cash taxes going forward either.

Scott Valentine

Okay, thank you, that's very helpful. And then just, I know the gain on sale revenue is not in the guidance, but we've seen very strong gain on sale margins. Two of your peers have reported, they've reported low teens down sale margins for the quarter and obviously it varies by aircraft type and age, but just wondering where you think aircraft gain on sale margins are running given type of aircraft you'll be selling are the narrow-bodies so they are the most in demand type of aircraft. Is it fair to assume kind of a high single digit gain on sale, is that would that be somewhere in the ballpark of what you'd expect?

Steve Zissis

Well, as you see from the sales we’ve already commented on and we have 16% margin on those sales including end of lease income, because I think you've got to include the end of lease income that you retain along with the sales gains. So I think yes, something in the high teens – high single figures, low double figures is something one could assume.

Colm Barrington

Now we can't assume that necessarily from the AirAsia aircraft because we haven't really gone into that market while we've been expressing interest. Having expressions of interest we don't get to own the aircraft, so we haven’t negotiated final terms, so we're going to have to wait and see and that's a little bit longer Scott.

Scott Valentine

Okay, all right. Thanks very much.

Operator

Your next question comes from the line of Bill [indiscernible]. Your line is open.

Unidentified Analyst

Thank you. So with the increase of leverage up to 4.9 times which is the highest of really all your peer groups by a fairly decent measure, are you going to be compensating that with increased and increased amount of liquidity to account for maybe any operational aberrations of any type, how are you thinking about that?

Colm Barrington

Julie, do you want to respond?

Julie Ruehl

Sure and we keep a close watch on our cash balance and I think that we've planned out the next several years to have adequate cash and don't foresee any issues there.

Unidentified Analyst

Okay, so what would be…

Colm Barrington

I think it is also important to remember that we have a small proportion of our debt is the unsecured debt. We don't have big balloon payments coming at us. So we can manage our repayments better perhaps than some of the other companies because of the structure of our debt and the preponderance of secured over unsecured debt.

Unidentified Analyst

Okay, but Julie if I heard you correctly, you're really not going to change from what has generally been in the $300 million to $600 million range of cash, would that be correct?

Julie Ruehl

No, I didn't intend to imply that. We've had that much cash because it's been challenging to deploy it at attractive lease rates. I'm just saying that we keep watching our cash balances and expecting our plan to have enough cushion and adequate sources of liquidity that we're not going to get into a jam at any point.

Unidentified Analyst

Okay, let me switch channels just for a little bit and just ask what level once the dust settles and you've done all your acquisitions or you've done all your sales of aircraft, what level of exposure as a percent of your total portfolio are you comfortable with AirAsia?

Colm Barrington

Look, bill, I think it's - first of all as I've said in my prepared remarks you've got to consider AirAsia's five different airlines or each of which operate independently and each of which are in five separate countries. So while we use the banner of AirAsia because that's the franchise and we are actually dealing with five different credits, I think if you look in the appendix to our presentation you will see how our exposures are spread over the various carriers. But, so we don't expect any one of those carriers to be anywhere above about 7% or 8% of our exposure, Julie, would that be right?

Julie Ruehl

Yes, I think that would be right.

Unidentified Analyst

And that's what the total portfolio or is that a collective percentage?

Steve Zissis

That’s each of those individual five carriers as a percentage of our total portfolio.

Unidentified Analyst

Okay, all right and one more administrative question and that just has to do with the three remaining aircraft on replace this year what are they and what's the timing on those?

Colm Barrington

Yes, I got it, so one A319 though in June which is a part of candidate and that's already actively being signed up and then we've got two 737-800s in December and one is close to being agreed to secured deal and the other one is still available in the marketplace.

Unidentified Analyst

Okay, thank you very much. I appreciate it.

Colm Barrington

Yes.

Steve Zissis

Thanks Bill.

Operator

Your next question comes from the line of Jamie Baker. Your line is open.

Jamie Baker

Hey, good afternoon everybody. Most of my questions have been addressed, but you made the earlier comment that the well chronicled engine woes out there right now are giving you some pricing power or you're seeing some pricing, better pricing on substitute aircraft that are coming up for release, can you expand on that a little bit?

Colm Barrington

Steve, do you want to come in on this one?

Steve Zissis

Sure, Jamie as you know that on the narrowbody side the GTS engines had some teething issues which has caused a significant delay and the delivery of the new Neos. And as a consequence of that many of the airlines either are looking forward placement look for extending current COs [ph] to make up for that shortfall on the delivery stream. So that’s having an impact on lease rates and demand.

Jamie Baker

I glanced the overall content, I was just curious, if you might be able to put some numbers or percentage terms just to sort of quantify the strength that you're seeing out there?

Steve Zissis

Well, I guess, if we had to guess on that I would put it at maybe 10%.

Jamie Baker

Okay, all right, yes, okay. All right, that's a good data point.

Colm Barrington

I don't think we should overemphasize the supply side. I think it's as important is the fact that air traffic is growing very rapidly worldwide. [Indiscernible] dictions. As you saw the IATA figures were out today, showing that global air traffic grew by 9.5% in March on an ASK growth of 6.5%, load factors hit over 80%, 82.4% in March. So, I mean, global air traffic is growing going gangbusters and that's I think as important a part of the conundrum as any supply issues on the Neos.

Jamie Baker

Got it and I appreciate the commentary. Thank you everybody. Take care.

Colm Barrington

Thanks Jamie.

Operator

Your next question comes from the line of Justine Fisher. Your line is open.

Justine Fisher

Hi, how are you?

Colm Barrington

Hello Justine?

Justine Fisher

Hi, I did have one question following up on Bill's question because your bonds are off since you guys announced this deal and I think that in the buy market people certainly realize the advantage of size and diversification and kind of scale in the market. But I think there is concern about the leverage and so I know that you guys have given us a timeline for reducing leverage. Is there anything that the company can do to accelerate that leverage reduction and bring it more in line peers sooner than three years from now?

Colm Barrington

I mean we could sell more aircraft more quickly. We could raise more equity. We could do a lot of things Justine, but we're based - we think we're on a track that we think gets us to a reasonable leverage, considering our debt profile over a reasonable period. You saw some of our peers and they made major acquisitions our leverage peaked also, but they got it down again on an orderly and planned basis over time and we expect to do the same thing. Again, we believe we can operate at a slightly higher leverage than some of the peers because of our preponderance of the debt.

Justine Fisher

Okay, great. That’s was my only question. Thanks so much.

Operator

And I'm showing no further questions at this time. I would now like to turn the conference back to Matt Dallas.

Matt Dallas

We would like to thank everyone for joining us for our first quarter earnings call. We look forward to updating you again next quarter. You may now disconnect.