Fly Leasing Limited
Q1 2020 Earnings Call Transcript

Published: 8 May 2020

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Fly Leasing First Quarter 2020 Earnings Call. At this time, all participant lines 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, Mr. Matt Dallas. Sir, the floor is yours.

[Matt Dallas:]

Thank you, and good morning. This is Matt Dallas, the Investor Relations Manager at Fly Leasing. And I'd like to welcome everyone to our first quarter 2020 earnings conference call.Fly leasing, which we will refer to as FLY or the company, issued its first quarter earnings results press release earlier today, 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 Events and Presentations page.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 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 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.And with that, I’d like to now hand the call over to Colm Barrington, the CEO of FLY Leasing. Colm.

[Colm Barrington:]

Thank you, Matt, and welcome, everybody and thank you all for joining us this morning. This is certainly an unprecedented time in global aviation. The COVID-19 related lockdowns, travel restrictions, consumer fears have resulted in the airline passenger traffic falling to a trickle and airline operations being severely reduced.As airlines report the traffic statistics for April, we've begun to see the result of this in terms of passenger numbers. Several major airlines already reporting passenger traffic at less than 2% of the levels they carried in April 2019.After several excellent years for aviation, leading up to and through 2019, we are now facing on precedented time in 2020 and likely beyond. Once again, it is a world event not directly related to aviation that has caused the virtual cessation of airline operations, the grounding of most of the global aircraft fleet, redundancies and layoffs of thousands of airline employees, and hemorrhaging of airline liquidity.What started out is looking like another very positive year for global aviation. Now looks like a real struggle for the industry and for all its participants including airlines, lessors and manufacturers. And despite airlines making strong efforts to shore up their liquidity, so it's likely that many won't be able to do so on their own.The positive news is that many governments are aware of the gravity of the situation and at the importance of aviation to national and global economic recovery. And as a result, are providing significant financial assistance to airlines. Hopefully, this assistance will be enough to allow many airlines to survive the current crisis and be able to ramp up their operations when travel restrictions are lifted and consumer interest returns.The recent loosening of restrictions on movement in some jurisdictions and the responses of the populations to their restored freedoms provide some hope that once the virus has abated or a vaccine or other effective treatment have been developed. We will see a return towards previous travel patterns. We will be watching these trends intently.We obviously, have great concerns and sympathy for the thousands of people who have already lost their jobs amongst our airline clients, and for those who have contracted the virus.All our colleagues at FLY and BBAM, are well have adapted to the requirement to work remotely. One of the features of our business as many of us, are conditioned to working away from an office environment. The restrictions on travel are certainly a challenge to us.Our FLY has reported another quarter of excellent financial results these are overshadowed by the importance of managing through the effects of the virus. Fortunate FLY's business model was designed to withstand industry downturns, and to provide a high level of protection through various cycles.While it's impossible to protect fully against the lockdown that we're experiencing today, we believe that our strategy, which we have applied consistently gives us a level of protection and confidence that FLY will survive the current crisis situation.First, our strategy has been based on concentrating our portfolio of the most widely used aircraft types, primarily popular narrow bodies. We expect that the demand for relatively new midline A320s and 737 next-generation aircraft, which one of the core of FLY's fleet will be the first to recover as these aircraft satisfy domestic and regional airline operations. The demand for these aircraft will likely be strengthened by lower fuel prices.Secondly, FLY has consistently skewed making speckles aircraft orders from the manufacturers. On the basis we couldn't predict the demand and lease terms for aircraft will be delivered several years out from the financing environment at the time of delivery. FLY has no aircraft orders from the manufacturers.Our future capital commitments have always been selective and have generally been made in conjunction with our airline customers through purchase and leaseback transactions. While it is unfortunate that current conditions resulted in the suspension of our purchase and leaseback transaction for A320neos, it does mean that FLY has no capital commitments in 2020.And thirdly, FLY has always adopted a conservative financing strategy based primarily on long-dated debt that amortizes broadly in line with the depreciation of our aircraft. As a result we have no significant debt or refinancing onto the fourth quarter of 2021.FLY is also fortunate to benefit from the experience of the BBAM team, which is more than 30 years' experience as managed aviation assets through several industry crisis. BBAM is a full-service global lease manager with strong and positive relationships with most of the world's airlines and financing institutions.BBAM is a very strong partner to help FLY and navigate through the present situation. The BBAM team is actively managing our portfolio with an emphasis on enhancing liquidity and protecting asset value. Like most lessors we have already received rent deferral requests from most of our lessees, we expect to grant rent deferrals to lessees representing about 70% of annualized contracted rents.While we are still in discussion with many of our 40 lessees, we expect the outcome to provide for a deferral period of less than four months and for deferred amounts to be repaid over approximately seven months. Julie will explain the GAAP implications of the deferrals later in the call.I would like to emphasize that there is a strong alignment of interest between FLY and BBAM in completing these arrangements. BBAM is obliged under the terms of its servicing and management agreements with FLY to treat each of its clients without preference. In addition BBAM shareholders now own 23% of FLY’s shares, which is the largest insider holding of any public aircraft lessor.Our strategy has placed us in a strong position to protect FLY from the present challenges. At the end of March, FLY had cash and unencumbered assets of approximately $900 million including unrestricted cash of $361 million, non-encumbered aircraft of $560 million. To put these amounts into perspective, in the March quarter FLY's annualized operating lease rental revenue was about $325 million. And our interest and scheduled debt amortization for the next 12 months totaled about $250 million. So adequate cash. At quarter end our financial leverage was an all-time low 2.1 times net debt to equity.Our debt as an average term of 4.5 years with no near-term refinancing needs. As mentioned earlier, we have no orders in the aircraft manufacturers, no result, no predelivery payments tied up with them. And as history has shown, we have proven the financing flexibility with strong track record of diversified financing sources.Since completing our major portfolio acquisition in late 2018, we've been purposely strengthening FLY's balance sheet, specifically by adding to our cash and unencumbered assets by reducing our financial leverage. This has been achieved principally through our aggressive sales program and has had the added advantage of reducing lessee concentration.From March 2019 to March 2020, we increased our unrestricted cash and unencumbered aircraft by more than 40% from $651 million to $921 million. And over the same period, we reduced our net debt-to-equity from 3.4 times to 2.1 times, the lowest level in the company's history.FLY is reporting another very good quarter of financial results. Julie will take you through the detailed financials later in the call, but here are some headlines from the quarter. Our total revenues were $122 million, a little behind last year's Q1 and mainly as a result of our smaller fleet, which comprised 84 aircraft value at $3.0 billion this year as compared to 103 aircraft valued at $3.5 billion at March 31 2019. Our adjusted net income of $44 million corresponded to $1.42 per share similar to last year's $1.44 per share.We made a gain of $31.7 million for the sale of six aircraft and two engines. We had an adjusted return on equity of 20%, our eighth consecutive quarter of double-digit ROEs. We increased our book value per share to $29.21, an increase of $6.47 or 28% in the 12 months since March 2019.Our results in the quarter continue to reflect the significant development in FLY over the last three years, selling older and less performing aircraft, optimizing our capital structure and most importantly, upgrading our fleet with newer and more profitable aircraft. These initiatives will hold us in good stead as we weather these challenging times.In the quarter, FLY sold 6 aircraft and 2 engines with a total gain of $31.7 million, which represents a 20% premium to the book value of the assets sold. The average age of the assets it over 10 years and the engines have been previously attached to an Airbus A319. that fly so for part out in the previous quarter.In the quarter, FLY acquired One Boeing 737 next generation. And in quarter two, we've completed the acquisition of two more 737 NGs pursuant to contracts that we entered into last year. Meanwhile and as widely reported the industry media, AirAsia has announced that we will not be taking any more A320neo deliveries this year. And so our proposed purchase and leaseback transaction has been deferred at least beyond 2020. As of now, we do not know if or when deliveries to will resume, as we remain in constant communication with the airline. We have no further commitments to purchase aircraft.With that, I'll hand you over to Julie to take you through the Q1 financial results in detail. Julie?

[Julie Ruehl:]

Thank you, Colm. FLY is reporting net income of $38.1 million or $1.24 per share for Q1 2020. ROE was 17.2% marking the eighth consecutive quarter of double-digit ROE. We are pleased with these solid financial results, which include a gain on the sale of 6 aircraft and 2 engines at a significant premium to book value. We continue to believe the quality of earnings was strong as demonstrated by FLY's increased net spread.On the revenue side, FLY's operating lease rental revenue in Q1 2020 decreased to $85.5 million driven by the sale of 41 aircraft since the beginning of 2019. As Colm mentioned, due to the COVID-19 crisis, we expect to grant some rent deferrals. However, we really didn't see any impact in Q1.We expect the vast majority of rent deferrals to conclude within this year and expect to agree to approximately $90 million to $95 million of rent deferrals in the second through fourth quarters. However, we generally do not expect these rent deferrals to reduce reported lease revenue provide a collection of rents continues to be reasonably assured.This is because under GAAP total rents over the term of the lease are recognized on a straight-line basis. Accordingly, changes to the timing of cash rent receipts such as under deferral arrangements will not affect the total amount of consideration to be received under the lease and therefore do not typically impact revenue recognition.Total revenues were $121.6 million in Q1 2020. FLY recognized $2.4 million of end of lease income related to scheduled lease expirations. Why recognized $31.7 million of gains on the sale of aircraft, which represents a 20% premium to net book value. Aircraft sales over the past five quarters enabled deleveraging and reduce lessee concentration and also built up Fly's cash balance all of which puts us in a stronger position today than any time in our history.Turning to expenses. Q1 depreciation and interest expense both decreased as compared to the prior year quarter due to aircraft sales. In addition to the lower debt levels due primarily to aircraft sales, interest expense also declined as a result of a lower weighted average cost of debt.\SG&A expense is down $1 million in Q1 as compared to Q1 2019 due to the smaller fleet. Also in Q1 2020, while recognized an unrealized loss of $9.4 million to write marketable securities down to estimated fair value. This expense item relates to FLY's investment in the equity tranche of aviation ABS vehicles commonly referred to as enotes. Following this write-down, FLY's investment at E notes is $6.6 million as of March 31.These securities are required to be marked at fair value each quarter, which may result in future income statement volatility. There were no aircraft impairment charges in Q1 and I will go into more detail about that now. First, a reminder that under GAAP, the undiscounted cash flows of an asset over it’s expected life are compared to its net book value to determine if the asset is impaired.We expanded our impairment analysis this quarter and reviewed estimated cash flows for over 90% of our fleet. Our analysis resulted in no impairment charges this quarter. We will continue to monitor for changes in circumstances, principally changes to estimated cash flow streams that may be indicators of potential impairment.We are highly focused on liquidity during these uncertain times. Our current unrestricted cash balance is sound and as Colin stated earlier, we have no near-term debt maturities. 2020 debt maturities are minimal and there are no significant balloon payments due until the end of 2021. We have also reduced our cost of debt with our active liability management efforts and continue and consider our refinancing risk to be mitigated due to the level of secured debt that we have which is amortizing. I'd like to conclude with a quick note, regarding our expectations for next quarter's financial results, which we have typically provided on our quarterly calls. While we believe many of our income statement line items remain largely predictable, we believe it is prudent to not provide any Q2 guidance at this time given the rapidly evolving nature of the COVID-19 crisis.I'll turn it back to Colm now for his closing remarks.

[Colm Barrington:]

Thank you, Julie. So in summary, FLY as many defenses as we face the current difficult industry conditions. We have ample liquidity and unencumbered assets and a long-dated financing with no near-term refinancing requirements. No have near-term capital expenditure requirements and no commitments to aircraft manufacturers.We have modern fleet of predominantly narrow-body aircraft on lease to a diversified group of airlines worldwide, for which 50% of our rental revenues are represented by flag carriers and U.S. major airlines. And finally, we benefit from the world-leading and experienced management provided by the BBAM team that has navigated through several global crisis, which can call on numerous industry contacts as required. While we will have to face rough waters for the coming months, FLY is a strong armory of protections to help us navigate through them.And now we can take your questions.

[Operator:]

[Operator Instructions] Your first question will come from the line of Ms. Catherine O'Brien from Goldman Sachs. Ma’am, your line is live. Please proceed.

[Catherine O'Brien:]

Good morning and thank you everyone for the time. Hope you are your family is all doing well. Maybe a first one just on the deferral commentary. I think you said it impacts lessors that generate 70% of your revenue. But most of the industry that we've heard from so far it's not – the deferrals are not equal to 100% of rent. It's usually some portion of monthly rents. So can you help us frame what percentage of revenue right now is potentially impacted, understanding it's a cash flow impact not really a P&L impact as of yet? Thanks.

[Colm Barrington:]

I think Julie gave some commentary that. Julie do you want to just respond to Catherine on that one?

[Julie Ruehl:]

Yes. Hi, good morning. Thank you for the question. Yes I think I said in my comments that we expect $90 million to $95 million of deferrals this year. And keep in mind that some of these discussions are ongoing and in process. So these are our estimates at this time. But if you compare that to the $325 million of annualized operating lease revenue that Colm mentioned we're in the 30% to 35% range of contracted rents that we are expecting to grant some deferrals on.

[Catherine O'Brien:]

Okay. Understood. Apologies. I was getting some weird Keybank. I must have missed that. Just maybe a follow-up on the deferrals and then I have one more. Are you at the point where any of your lessors have – or excuse me lessees have started to repay normal rates maybe some airlines out of Asia that the deferral started a couple of months ago. Just trying to get a sense of where you are in the cycle, where you maybe expect for your current expectation on collections will bottom and then – yes that's it from.

[Colm Barrington:]

I think Steve you might like to respond to that one?

[Steve Zissis:]

Sure. Catherine we had a handful of airlines in Asia that came early in the crisis. Asking for deferrals. But at the end of the day they decided they didn't need them and therefore paid on schedule. And I will add that post the crisis. In fact, we've extended two aircraft at decent lease rates for six years. So it's not all bad news. It's more of a mixed bag of activity out there.

[Catherine O'Brien:]

Okay. Got it. And then maybe just on the AirAsia aircraft. I understand that TBD on one and if those deliveries will restart. But just maybe two questions on that. First there's no penalty to fly for those deferrals, right? That would be AirAsia's negotiations with Airbus? And then maybe a second question, I think it's been the prostate BBAM has done potentially on the sale back transaction was delta on aircraft in its current fleet. Will FLY be participating? Or do you expect FLY to potentially see any incremental aircraft adds via the sale back market this year. Thanks so much.

[Colm Barrington:]

Steve do you want to take that on a little too?

[Steve Zissis:]

Sure. So with respect to AirAsia, as you know they've made a statement that they will not be taking their neos until growth returns. And all of our transactions are derived directly through AirAsia not directly with Airbus. So those are sale-leaseback transactions.As Colm had mentioned in his prepared remarks, we are not taking any sale leasebacks this year and we stand reconsider the transaction in 2022 and 2023 and beyond. So that's an evolving schedule now and we'll work with AirAsia on that as it develops.With respect to the transaction with one of our major clients in North America, BBAM and not fly. BBAM did transact a very large transaction early in the crisis to assist one of our clients. That's one of the beauties of the platform is that we can access very large deals. And as we see opportunities with our capital partners, we can allocate those deals. We did not allocate any of those deals to fly, not because we didn't have the capital or we didn't want to grow we certainly do want to do that but we thought it was just too early in the crisis for a public entity to be spending its capital until we can see what this recovery looks like. So, as opportunities come along and you can use the strength of the BBAM platform, you can expect to see FLY participate in some of those deals.

[Catherine O'Brien:]

Okay. That makes a lot of sense. I appreciate that. And if I can just sneak -- I just want to make sure -- like so there's zero recourse to Fly for Air Asia's decision to push those deliveries out. That's an area are discussion right?

[Colm Barrington:]

That's a correct statement.

[Catherine O'Brien:]

Okay. Great. Awesome. Thank you so much for all the colors.

[Operator:]

Thank you, ma’am. Your next question will come from the line of Mr. Koosh Patel from Deutsche Bank. Sir, your line is now live. Please proceed.

[Koosh Patel:]

Hey good morning guys. I just had a couple of questions here as well. The first one is, I guess what factors are you using in order to determine whether to grant lease deferrals? And what level of deferrals to grant to some of these customers?

[Colm Barrington:]

Steve, do you want to go on that one too?

[Steve Zissis:]

Yes. Chris you're a little tank there. You're saying what levels of deferrals are the airlines asking for? Sorry. Let me just say that again. What factors are you using in order to determine whether to grant deferrals? And how do you guys kind of approach that process?

[Colm Barrington:]

Well obviously the big one is the viability of the airline going forward, right? So, we pretty much used three metrics as we evaluated the situation. One is near term liquidity. And whether they had enough near-term liquidity to get to the end of the year? And then the second and third issues here that we evaluated was government support. And shareholder support in the form of what levers they could pull in the event they needed more liquidity to capacity prices. So those were the three key metrics. Obviously, there were other things that went into that evaluation such as near-term maturities CapEx and obviously their fleet strategy.

[Koosh Patel:]

Got it. And then, just as a follow-up I know you do have an option book on some neos as well which I don't think is associated with Air Asia making decisions. So, could you just kind of walk us through the process on that and when you have to make some of those decisions?

[Colm Barrington:]

Yes. So as you will remember from prior calls we have 20 options that we derived through Air Asia on future neos. Early on 1.5 years ago, we exercised some of those options. But Air Asia did not have aircraft available to fulfill that agreement. So that part of the transaction is suspension until we could figure out what aircraft are available and what future growth looks like. So, there is no obligation on behalf of FLY or BBAM to pick up any option aircraft at this point.

[Koosh Patel:]

Great. Thanks a lot guys.

[Operator:]

And your next question to centers will come from the line of Ms. Helane Becker from Cowen. Ma’am your line now live. Please proceed.

[Helane Becker:]

Thanks very much operator. Hi everybody and thank you very much for the time. I just have a couple of questions on -- I think slide number 19. So kind of later in the presentation you have some aircraft out to Alaska air. Are they 737s for A320 or A21? And are they coming -- if they're the A320s are they coming back to you?

[Colm Barrington:]

Steve?

[Steve Zissis:]

It's an A320, Helane. And I believe the expiry on that aircraft is 2023. So, we don't have any near-term visibility on Alaska airlines desire to keep or get that aircraft back at this point?

[Helane Becker:]

Okay. That's good to know. It's a longer-dated lease. And then the other question I don't know if Colm or you want to answer this, but Air India, is a big client for you. And obviously those leases are guaranteed by the government. But just kind of wondering how you're thinking about your portfolio of lessees in this environment, I mean is this an opportunity for you to upgrade your client list in some parts of the world and maybe shift exposure around from some places that might be more risky going forward to places that might be less risky A? And B, do you have any concerns about those specific or India aircraft?

[Colm Barrington:]

Steve, again I think that's your area?

[Steve Zissis:]

Sure. Look Helane that's a really good question. So I think there's two observations, I would make. One is the current fleet at FLY is about 60% of net book value in Asia. Asia went through the crisis earlier than anybody else. And we expect Asia to recover before anybody else. So in that respect, we think we'll get through this quicker than some of the other lessors just given our exposure to Asia. The other observation, I would make is that the animal instincts and commerce in Asia is probably stronger than other parts of the world. So as per subsides and as Colm mentioned they get some antiviral or vaccine developed. And we expect travel to bounce back a lot sooner in that part of the world. So in that respect I think we're sitting pretty well.With respect to your second part of the question, which is do we see this as an opportunity to upgrade the quality of our fleet that's absolutely true. We're seeing some of the best Tier 1 airlines try to access the sale-leaseback market to gain liquidity here. And we do see this as an opportunity as the crisis unfolds to improve the quality of our portfolio. So you could expect to see us play in some interesting names as opportunities come along.

[Helane Becker:]

Got you. What are – I don't know, if you said this but as you think about those opportunities to do sale-leasebacks like what are you looking for? Are you – I guess it would be younger aircraft than the average age of the current portfolio and a better yield than the portfolio?

[Colm Barrington:]

Yeah. Look it's – well first of all, it's having some view on how we think the airline will develop and its competitive position in the market going forward? With respect to specific deals, we are looking for younger aircraft with very long sale-leaseback terms. But having said that, we're not shy on doing some shorter-term deals as long as the risk reward is warranted and we do see quite a few opportunities coming up. But keep in mind that a lot of the nature lessors as they defer their order book we're probably going to enter into the sale-leaseback market to show some growth. So it maybe somewhat more competitive than we all think.

[Helane Becker:]

Got you. And then my last question. On the 2021 notes, they're due in October. And I'm just kind of wondering, how I mean obviously you don't have to worry about that for whatever 18 months. But how far in advance would you consider going into the market to refinance those or to push the maturity dates out? I mean, you've got – I'm looking at slide 15 and you actually have a pretty good repayment schedule for the next five years until you get to like 24 and five, but next year obviously and to your point earlier it's fourth quarter. So how early in 2021 would you start to think about pushing those forward?

[Colm Barrington:]

Well, Helane we've shown over the years that we've been pretty flexible in terms of our financing and refinancing. So we are looking at all options as of today, but the markets are pretty turbulent right now. So it's because of the virus. So I think we'd have to wait for a little while until the things settle. But certainly, we will be looking at all options as of now right through the financing – refinancing date. So and I expect that we will do something between this and then.

[Helane Becker:]

Great. Got you. Okay. Well, there's obviously no rush to. Thank you. Thank you very much for your help guys. Enjoy. Have a nice afternoon.

[Colm Barrington:]

Thanks, Helane.

[Helane Becker:]

Thank you.

[Operator:]

Thank you. And the presenter, your next question will come from the line of Jamie Baker from JPMorgan. Sir, your line is now live. Please proceed.

[Jamie Baker:]

Hey, good morning, team. Can you hear me okay?

[Colm Barrington:]

Perfectly, Jamie. Hi.

[Jamie Baker:]

Great. Hi. My first question probably won't come as a huge surprise. What are your thoughts on accepting equity in lieu of rents? And have any of your more challenged airline customers made any proposals in this regard?

[Colm Barrington:]

Steve, do you want to talk about that one?

[Steve Zissis:]

Well, Jamie, it's Steve. None of our current lessees have offered such a mechanism. Would we consider it? Unlikely. We are a lessor and we want to stay pure as a lessor. But there maybe circumstances where it would fall into the exception basket and you probably are referring to the Norwegian deal, and what that means for the marketplace. So, I would say in general that's probably a non-starter. But there are some interesting – I wouldn't say opportunities, but possibilities out there that we might change our mind on. So I think we stay open to it.

[Jamie Baker:]

Okay. Just had to ask, and second and this is a deferral question. Alaska disclosed that they've gotten up to 12 months of payment relief from some of their lessors. But what I'm hearing, this earnings season is that three and occasionally six-month reprieves or really all that's being given out.And of course your disclosures this morning, I'm not asking you to name names. I'm just curious I mean is this evidence of the divide, between better platforms like yours and weaker platforms, or can you think of something structural that, I haven't thought of? I haven't really been able to get any color out of Alaska on this. I was just somewhat puzzled and alarmed to see up to 12-month reprieve is being offered.

[Colm Barrington:]

Steve, do you want to comment on that little so?

[Steve Zissis:]

Sure, Jamie. Look across the BBAM fleet, we have 525 aircraft and some 90 lessees. Of those 90 lessees I'm going to say there were three that request it longer than three month deferrals. And all three of those have been denied. Look, I think all lessors are in a position where they want to help their clients, get through the crisis. But we're not a long-term provider of liquidity, right? They need to fix their balance sheet. And then, we have to assess the viability from there. So I think requests for that type of deferral is out of balance.

[Jamie Baker:]

Okay. I appreciate that. It's actually really very helpful. Thank you everybody. Thanks Steve and thanks Julie.

[Steve Zissis:]

Thanks, Jamie.

[Operator:]

Thank you, Sir. Your next question will come from the line of Mr. Doug Runte from Deutsche Bank. Sir, your line is now live. Please proceed.

[Doug Runte:]

Thanks very much for taking my question. A couple of questions, can you give us an idea of your uncommitted lease rules in 2020 and 2021?

[Steve Zissis:]

Sorry Doug, can you repeat that part on leasing.

[Doug Runte:]

Your lease expiration, in 2020 and 2021?

[Colm Barrington:]

Okay? I think that's shown on slide 21 of our presentation.

[Doug Runte:]

I apologize I was having some technology problems here.

[Colm Barrington:]

Okay. We have three in 2020, representing 3% of our fleet.

[Doug Runte:]

Okay.

[Colm Barrington:]

And we've one representing 9%.

[Doug Runte:]

Great and you mentioned that two lease rentals had actually been renewed. Maybe it's too granular of a question. But can you give us an idea of, what you may have gotten on those lease rental renewals versus what you might have expected a few months ago?

[Colm Barrington:]

Steve, do you want to give a comment, on your expectations?

[Steve Zissis:]

Yeah its look like all of these extensions, the discussions pre-dates the crisis, right? And both of the airlines that extended stood up to their word and did not renegotiate post the crisis, which we respect and appreciate. Because that's the way business should be conducted. And those lease rates renewals reflect pre the crisis.As we go into the crisis and lease rates up you can expect I don't know, I'd say 5% to 10% haircut, as we navigate through this. But as I said in my earlier remarks, I do think given that 60% of our fleets in Asia, we think the rebound there is going to be a lot stronger than other parts of the world. And that lease rates will firm there before they firm other places.

[Doug Runte:]

Great and your financials as a note that, says no aircraft are held for sale as of March 31st, does that imply that all the airplanes and the ABS transaction have been novated?

[Colm Barrington:]

Yes. All have been transferred over at this point in time.

[Doug Runte:]

And the last question the write-offs on the aircraft ABS extend across, each of the aircraft ABS transactions? And was it roughly proportional?

[Colm Barrington:]

Julie, do you want to comment on that one?

[Julie Ruehl:]

Hi Yeah. Yeah it is across the -- all the transactions and yes roughly in the same range of write-downs of percentage write-downs.

[Doug Runte:]

And you said on the call it's now $6.6 million as the value of the equity that the right – offs?

[Julie Ruehl:]

Yes certainly have a meaning.

[Doug Runte:]

Great, thank you very much.

[Colm Barrington:]

Thanks, Doug.

[Operator:]

Thank you, sir. Your next question will come from the line of Mr. Bill Mastori from Baird. Sir your line is now live. Please proceed.

[Bill Mastori:]

Thank you. Colm and Julie, if I wonder if you could go through and just kind of review, what aircraft types do you have in your unencumbered assets?

[Colm Barrington:]

Well. Julie, do you have -- I know we have a list of them it doesn't come immediately to hand. But it's mainly narrow bodies. I think it might be only now enter.

[Julie Ruehl:]

Just give me one second -- mainly? Yes, I think, that's correct.

[Colm Barrington:]

I'm sorry?

[Julie Ruehl:]

Mainly narrow bodies.

[Bill Mastori:]

Okay. And the average age and -- average age of those?

[Colm Barrington:]

I can help you with that. It's all narrow bodies. The average age is from 2006 to 2019. There's one neo in there. And they're all A320, A321neos, 737-800s and 319, one evidently.

[Bill Mastori:]

That's perfect. So the next follow-up question is, if you needed additional liquidity is this an option that you would consider and under what circumstances, would you go ahead and maybe go ahead and convert that into a financing? And this goes back to an earlier question, I believe, Helane asked on 6.375% to 2021?

[Colm Barrington:]

All right. Can you clarify that question? Would we use those aircraft assets to secure --

[Bill Mastori:]

For a refinancing, yes, for a refinancing of the in 6.375%. I mean, I think the timing and recovery, I think, like, everybody accepts the fact that it's going to be uncertain, just in terms of its pace. And so, if we did get down to it and we were in a precarious position this time next year, would that be used as maybe part of a refinancing for the 6.375%?

[Colm Barrington:]

If we had to, yes, certainly, there's no doubt about it. That's with those aircraft. They're unencumbered and we would certainly be prepared to encumber those in order to generate liquidity to refinance another facility if that what's required, definitely.

[Bill Mastori:]

Okay. But it sounds like there's no current plans at all to do that. Would I be correct, Colm, in that?

[Colm Barrington:]

Yes. I mean, look, things are a bit volatile right now. So we think the dust will settle over the coming months. And then, we will -- we are certainly -- we continue to explore all possibilities, but we think there more possibilities will emerge as the dust settles over the coming months.

[Bill Mastori:]

Okay. So the next question I have has to do with, are you using any of the security deposits from any of your lessees, kind of, in lieu or as part of a deferral arrangement? And if so, what -- maybe any color there would be greatly appreciated.

[Colm Barrington:]

Julie, do you want to comment on that?

[Julie Ruehl:]

Yes. At this stage we are not contemplating using security deposits to offset the rent deferrals. That's not been part of our arrangements to date. And in the event that we would use any secured deposits they have to be replaced with a letter of credit or an arrangement to replace the cash security deposit at some point?

[Bill Mastori:]

Okay. And then, last question, I'm just confirming, you haven't repossessed any aircraft at this point for many of your lessees. Would it be correct in that assumption?

[Colm Barrington:]

You are correct. We have not repossessed any aircraft.

[Bill Mastori:]

Okay. Thank you very much. Really do appreciate the color and the answers.

[Colm Barrington:]

Thanks for the call.

[Operator:]

Thank you, sir. And presenters, you do have a follow-up question from Ms. Catherine O'Brien of Goldman Sachs. Ma'am, please proceed.

[Catherine O'Brien:]

Hello, again, everyone. Thanks for the additional time. So maybe one for Julie. I'm pretty sure that your other assets on your balance sheet are primarily driven by the value of that AirAsia order book portfolio. Any thoughts on the deferment of those orders impact that balance sheet figure? Any risk of write-down there? Thank you so much.

[Julie Ruehl:]

Hi. Yes. We looked at that at quarter end. And at this stage, we are expecting those aircraft to deliver. And the delivery is just to be delayed. So, we don't anticipate at the current time any write-down of that asset.

[Catherine O'Brien:]

Okay, great. Thank you. Very clear.

[Operator:]

Thank you, Ma'am. And presenters, I am showing no further questions at this time. Thank you and I would like to turn the conference back to Mr. Matt Dallas.

[Matt Dallas:]

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

[Operator:]

Thank you, sir. And, again, thank you everyone for participating. This concludes today's conference. You may now disconnect. Stay safe and have a lovely day.