Fly Leasing Limited
Q2 2017 Earnings Call Transcript

Published: 10 Aug 2017

[Operator:]

Good day, ladies and gentlemen and welcome to the FLY Leasing Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] I would now like to turn the conference over to our host for today, Matt Dallas with Investor Relations. You may begin.

[Matt Dallas:]

Thank you, operator. Good morning. I am Matt Dallas with Investor Relations at FLY Leasing. And I would like to welcome everyone to our second quarter 2017 earnings conference call. FLY Leasing, which we will refer to as FLY, or the company, issued its second quarter earnings 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 or if you would just like to get a separate copy of the presentation, you can find it in the Investor Relations section of our website 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 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 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 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 90 days on the company’s website. And with that, 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 second quarter earnings call. As I have reported during the past several quarters, our industry fundamentals remain very healthy. Airlines throughout the world are experiencing growing demand and reported strong profits. Through the first half of 2017, passenger traffic grew at over 7% and this rate of growth is forecasted to continue through the rest of the year. We are very pleased with the demand we are seeing from our customers for new and used aircraft. All of our 2017 lease maturities, except one have now been released or extended at rates on average above our initial forecast. The one aircraft we have left to remarket in 2017 expires in December and we don’t see any problem placing that aircraft at an attractive lease rate. And in 2018 is a very light remarketing year with only 5 aircrafts remaining to be placed. Our focus in the second half of 2017 will be twofold. First and most importantly, we will continue our strategy of growing smart and only committing to aircraft we believe offer attractive total returns and are immediately accretive to ROE and EPS. We have made good progress on this front in the first half, which Colm will provide further details. And we believe we are in a good position to reach our full year acquisition goal of $750 million. Of course, the sale leaseback market remains highly competitive, particularly for Tier 1 credits. As I said to you many times before, we simply won’t acquire aircraft for growth sake. Even though, we have more than $2 billion of capital to spend, we remained very selective in our growth approach focusing on the newest technology aircraft. This quarter, we added four brand new aircraft to the fleet including a new Boeing 787 Dreamliner and a new 737-8 MAX which is FLY’s first MAX aircraft. And secondly, we will continue our efforts of reducing our costs with particular emphasis on costs of our long-term debt, strong capital market conditions and robust bank capacity will give us some good opportunity to complete some refinancing initiatives that will lower our total all-in volume costs going forward. Before I turn the call over to Colm to go through the quarter in more detail, I want to provide some general comments regarding the company’s prospects and earnings potential. We have spent the last 2 years significantly improving our fleet and as a result our long-term earnings quality. We also had significantly increased our liquidity which was critical to achieving our growth targets, it’s costly in terms of negative carry in the short-term as this cash sits unused on our balance sheet. With the vastly improved number of fleet, reduced debt costs and significant capital on hand FLY is poised to greatly improve its earnings power. Over the next 2 years as we deploy our excess liquidity, we have the ability to grow earnings per share and improve ROE significantly. To put that in perspective, our adjusted ROE for the first half of 2017 was approximately 7%. Within 2.5 years and assuming we invest approximately $1.75 billion in new assets, we expect to achieve an adjusted ROE approximately double that. I would now like to hand the call over to Colm Barrington, FLY’s CEO to go through the second quarter’s results in more detail.

[Colm Barrington:]

Thank you, Steve and good morning everyone. As Steve has mentioned in all global theaters, the airline industry continues to outperform projections with the 7.9% growth in global air traffic, being the highest first half result achieved since 2005. The 80.7% load factor being the highest ever achieved in the first six months of a year and the projected $31 billion profit from airlines forecast again being well above historical levels. This will be the third consecutive year or the third year in the industry’s history in which airlines would make a return on invested capital – on invested capital which is about the 6.9% weighted average cost of capital that they have. A healthy global airline industry provides a great base for the aircraft leasing sector and this strong traffic growth in airline profitability which are based on strong global economic progress and continuing low fuel prices looks likely to continue for the foreseeable future. FLY and the aircraft leasing sector generally is benefiting from these positive conditions. As shown by our 100% fleet utilization, our negligible receivables balance and our minimal near-term remarketing requirements. As FLY continues its fleet rejuvenation, we expect to see these industry trends being reflected in increased net income and EPS. We still have significant unused financial resources and as we steadily deploy these resources over the coming months, we expect that our net income, adjusted net income and earnings per share will show positive growth from current levels. In the second quarter we grew FLY’s fleet by investing $290 million in five aircraft including four aircraft purchased new from the manufacturers. The five aircraft are leased with an average term of 11 years, further enhancing the overall quality of our portfolio. Four of these aircraft entered our portfolio at the very end of the quarter. They had that only a minimal impact on Q2 earnings. We expect to see substantially improved earnings from these aircraft and others in our pipeline in the quarters three and four and beyond. FLY continues to aggressively purchase its shares. In the second quarter we bought back nearly 2 million shares at a cost of $25.9 million in total. As of the end of June 2017, we had repurchased approximately 6.5% of the shares outstanding at the beginning of the year. Our average price of just over $13 per share has helped to increase our net book value per share this year to $19.08 at the end of June. At quarter end we had $39.4 million remaining in our current program. We will continue to buyback our stock in which we see excellent value. We will also continue our focus on prudent growth and have a strong pipeline of attractive aircraft investments that we expect to announce in the coming months. As Steve has confirmed, we expect to meet our $750 million acquisition target in 2017 and we have the financial results that require over $2 billion of additional aircraft. As shown by our $335 million of unrestricted cash, $507 million of unencumbered aircraft and our continuing ready access to attractive debt. As we prudently deploy these resources, we expect to see substantial increases in FLY’s reported earnings. In the last 2 years, FLY has accomplished a lot, we have concentrated on four main areas to improve earnings per share and return on equity. We have sold 71 older and less profitable aircraft, which has improved our fleet metrics considerably. We still have a little work to do in this area. We expect that these initiatives will result in improved earnings also. From September 2015, we have repurchased 29% of FLY’s shares at a 31% discount to net book value. This action have the affect of reducing our share count to-date to 29 million shares, increasing FLY’s net book value per share to just over $19, an approximate $5 premium to our current share price. We have also focused on cost and liability management, increasing our available resources and reducing our debt costs and management fees. Finally and most importantly, we invested $1.5 billion in 25 younger aircraft. These newer aircraft which are on longer term leases reduced our fleet age to 6.1 years and increased our average lease term to 6.8 years. FLY now has the second youngest fleet to the public lessors, which combined with our long-term leases and our relatively low share price makes FLY an attractive investment. I would like to add a brief update on our share repurchase program. This year through August 9, we have repurchased approximately 2.8 million shares at a total cost of $37.4 million. This represents 9% to FLY’s outstanding shares at the beginning of the year and our average purchase price of $13.27 per share and a significant discount to net book value per share, which again at the end of quarter two was $19.08 per share. We have $29 million remaining in our current repurchase program. Despite the competitive market conditions for aircraft – aircraft acquisitions as Steve referred to earlier, FLY continues to execute on its fleet growth. Return on sales target of adding $750 million worth of aircraft in 2017. We have acquired and committed to $459 million of this target and expect that we will achieve the balance by year end. We have also committed to more than $40 million worth investments for 2018. 11 acquired and identified aircrafts include two Boeing 737 MAXs, showing that FLY is already transitioning towards new generation of narrow-body aircraft types. We expect to see more and more of the newer types in our fleet with the user base of these aircraft specifically the A320neo and the 737 MAX expands over the coming years. The aircraft we have acquired and are acquiring have an average age of 2 years under our leases with an average term of nearly 10 years. The 11 aircraft are projected to contribute $51 million of additional annual rentals and $60 million of additional pretax income. As we prudently deploy the $2 billion plus of additional buying power on FLY’s balance sheet, we expect to see improved earnings. It is also worth noting a few initiatives that FLY has taken to increase its financial resources and reduce the cost of its debt. We have recently re-priced, extended and upside our term loan which has more than $400 million of FLY’s largest single debt facility. We reduced the margin by 50 basis points to 2.25% and extended maturity by 1 year to February 2023. These initiatives have helped FLY achieve a very secure capital structure with an average debt maturity of 6.2 years and no significant debt maturities until December 2020. Meanwhile current capital market conditions are particularly attractive. We expect to avail of these conditions to achieve further attractive refinancings and to reduce our debt costs further. With that, I will hand you over to Gary for his financial review.

[Gary Dales:]

Thank you, Colm. As Colm mentioned, we are reporting net income of $2.9 million or $0.09 per share for the second quarter of 2017. This compares to net income of $4.7 million and $0.14 per share for the same period in 2016. A quarter in which there was both end of lease revenue and gains from aircraft sales. Our operating lease rental revenues are up 10% to $81.2 million. The aircraft acquired during 2016 and the second quarter of this year, are producing higher rents. Total expenses were $76 million and are up primarily due to increased depreciation and interest from growth in our portfolio. Also, within the $8 million of selling, general and administrative expense this quarter is a $1.3 million charge primarily related to the revaluation of our euro denominated debt. We have one lease in which we collected portion of the rents in euros. In order to economically hedge our foreign currency risk, we partially finance this aircraft in euro-denominated debt. Unfortunately, for financial reporting purposes, we must translate the total principal amount of the debt outstanding whereas on the other side only one quarter’s rent is translated at the current exchange rates. The strengthening of the euro caused the recorded value this debt to increase resulting in the charge for the unrealized foreign currency movement. We adjust this charge out of our adjusted SG&A. You can find the components of our adjusted selling, general and administrative expense in the appendix. For both the second quarter and on a year-to-date basis, adjusted SG&A is decreasing when compared to the same periods in the previous year. Further, it is decreasing as a percent of total revenues. Revenues, which include decreased end of lease revenue and no gains from the sale of aircraft. Now, let me cover a few items of guidance. For the third quarter of 2017, FLY is expecting operating lease rental revenue to be between $86 million and $88 million. We expect amortization of lease incentives to be approximately $2 million. Again, we do not expect any end of lease income. Depreciation expense is expected to be approximately $34 million. We expect interest expense of approximately $33 million. SG&A expense will be approximately $7 million without consideration of any foreign exchange gains or losses that may occur. Before I turn the call back to Colm, I want to call your attention to our appendices where in addition to adjusted SG&A we have our cap table and a reconciliation of adjusted net income. With that, let me turn it back to Colm for his closing remarks.

[Colm Barrington:]

Thank you, Gary. So, having substantially completed our major aircraft disposition program and repurchased a significant percentage of our shares at attractive prices, FLY is now well positioned to increase earnings and create greater shareholder value from its current level. Already, our net book value of $19.08 per share is significantly higher than our share price. We have the second youngest fleet of the U.S. list of aircraft lessors with an average fleet age of 6.1 years and an average lease term of 6.8 years. And we continue our focus in acquiring more and newer aircraft. As we make further investments of fleet metrics expected to improve further as evidenced by our current pipeline, it is 2-year average age and the 9.7 year average remaining lease term. As explained earlier, our balance sheet is underemployed and have the capacity to add over $2 billion of additional aircraft. We maintain a conservative financing strategy with interest exposure substantially hedged at an average debt maturity of over 6 years. Additionally and reflecting this conservative policy, we continue to improve our secured debt costs, which now averaged 3.86%. As we deploy our free cash and more accretive aircraft acquisitions and share repurchases, we expect to see significant increases in earnings per share and net book value per share. With that, thank you and we are now ready to take questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Catherine O’Brien of Deutsche Bank. Your line is now open.

[Catherine O’Brien:]

Good morning, gentlemen. I was just wondering we continue to hear about the competitive nature of sale leaseback market, especially for new planes. On those 4 new aircrafts and the manufacturers this quarter, were those sale leasebacks or were those slots that opened up and if they were sale leasebacks, can you speak to the general terms of these leases relative to your average portfolio metrics?

[Steve Zissis:]

Yes. We closed and funded 5 aircraft. Of those 5, 4 of them were sale leasebacks directly with the airline and one was a naked purchase from an airline that has excess capacity that we placed with a airline in Europe. In terms of general terms of the deals, I mean, they are all on par with our internal metrics of mid-teen type of recurrence and purchase prices were somewhat close to appraisal to take 10% below appraisal so in that range.

[Catherine O’Brien:]

Okay, great. And then can you just give us some color on the remaining $460 million you have got in the pipeline for this year. How firm are those commitments? When should we expect them to close between the September and December quarters? And any color on fleet mix between narrow-body and wide-body will be great?

[Steve Zissis:]

Yes. So, as Colm mentioned, we have a $460 million pipeline, $290 million of that is closed. We have a $170 million that will close probably up until the end of the third quarter. They are all narrow-bodies, including one additional 737-8 MAX. And then we have another committed deal in the first quarter of 2018, which is not in that number that we just gave you. So, you can add that to the budget.

[Catherine O’Brien:]

Okay, great. Thank you for the time.

[Colm Barrington:]

Thanks, Catherine.

[Operator:]

Thank you. And our next question comes from Gary Liebowitz of Wells Fargo Securities. Your line is now open.

[Gary Liebowitz:]

Thank you, operator. Hello, gentlemen.

[Colm Barrington:]

Good morning, Gary.

[Gary Liebowitz:]

Good morning. Just wondering if you can give us an update on your customer watch list and whether you have any airlines whose lease revenues are being recognized on a cash basis?

[Colm Barrington:]

As of now, sorry, Steve.

[Steve Zissis:]

Go ahead.

[Colm Barrington:]

Gary, as you see our receivable balance at the end of quarter was negligible. So, we have nobody on the watch list and all our rentals were up-to-date and nobody is on the cash basis.

[Gary Liebowitz:]

Okay. Also, Colm, you mentioned the refinancing opportunities, are these on the secured facilities or should we also be looking at the call schedule on your unsecured bonds?

[Colm Barrington:]

We are looking at everything, Gary, but obviously the bonds are our highest priced debt at the moment. So, we are putting particular attention on to those.

[Gary Liebowitz:]

Okay, thank you very much. I will get back into queue.

[Colm Barrington:]

Thank you.

[Operator:]

Thank you. And our next question comes from Helane Becker of Cowen. Your line is now open.

[Helane Becker:]

Thanks very much, operator. Hi, everybody. Thank you so much for the time. Just a question on the timing of the $2 billion in potential aircraft acquisitions you can do. Is that like a 2-year, 3-year how should we think about investing that money or is it maybe you can talk a little bit to that, I know part of it is obviously going to be second half, but help us understand the rest?

[Steve Zissis:]

Well, I think the way we – where we currently think about that is it’s a 2 to 2.5 year investment program at our current pace. But as you know, Helane, we are not careful about taking big swings that we find an opportunity. So, if we come across a large sale leaseback program or portfolio or even an acquisition opportunity we wouldn’t mind taking a shot at it. So, it really will just depend on how the opportunities develop over the next couple of years here.

[Helane Becker:]

Okay. And then if there were a portfolio available at a cost above the $2 billion, would you be able to finance it, would you be able to attract additional capital to finance that acquisition?

[Steve Zissis:]

Yes. Our kind of our view on that is given the appetite for investment in aviation, we don’t think would be a problem to finance that or bring partners in to do a large acquisition.

[Helane Becker:]

Okay. That’s awesome. And then my other question is kind of more of a housekeeping question, can you just explain the tax rate to me, I kind of thought it would be lower than the 24% that you booked in the quarter and it wasn’t obviously.

[Gary Dales:]

Hi, Helane, this is Gary. The reason the tax rate is so lower is we have some permanent [indiscernible] within our tax provision, which are relatively fixed amounts. And so as the pretax income gets smaller they became – become a larger percentage in the tax rate confrontation. And so that’s why you are seeing the rate a little higher, it’s probably more a function of the pretax income than it is various tax items. So as we expect to grow our pretax income you should see the effective tax rate trend downwards, we won’t ever quite hit our 12.5% that is our statutory rate, but it will be lower than the current tax rate.

[Colm Barrington:]

And as you know Helane, because this is just an accrual anyway it’s not actually tax that we actually pay

[Helane Becker:]

Right. No, I get that it’s just – I just wanted to understand that a little bit. And then there were no gains in the quarter on aircraft sales, so you have done now with all your sell programs is that how we should kind of think about it going forward?

[Colm Barrington:]

Look, we – as I said in my in my prepared text, we are – we look at our portfolio on an ongoing basis. So you will probably see some limited aircraft sales over the coming quarters. But we are not projecting anything at this point in time. So in the guidelines Gary gave you, there wasn’t any aircraft sales.

[Helane Becker:]

Okay, that’s perfect to know. Thanks very much everybody. Thanks for the time.

[Colm Barrington:]

Thanks Helane.

[Helane Becker:]

Of course.

[Operator:]

Thank you. And our next question comes from Scott Valentin of Compass Point. Your line is now open.

[Scott Valentin:]

Thanks for taking my question. Steve you mentioned that I think it was Tier 1 airlines for sale-leaseback transactions extremely competitive, are you guys, are you targeting that Tier 1 sector looking just below that to get better yield, just curious as to if the competition has changed your kind of targeting in the sale-leaseback?

[Steve Zissis:]

Yes. But BBAM pretty much bid almost every deal that’s out there. So we have pretty good insight on what’s happening on the Tier 1. Obviously, FLY has a different return criteria, so in most cases on Tier 1 FLY doesn’t make it to second round. So I guess the short way of answering that Scott is that yes we do bid them, but we know our cost of capital and our return criteria for FLY really is not competitive on the Tier 1 transactions.

[Scott Valentin:]

Okay. Thanks. And then on the – you guys mentioned kind of a 2-year longer term ROE target or ROE goal of say 14% and the first half of the year was closer to 7%, just wondering if you could do a rough walkup of that, how much of that is going to come from increasing leverage maybe from where it is today, how much of that is going to come from lower finance costs and then I don’t know if you anticipate any change in overall lease factor rates?

[Colm Barrington:]

Well, I think Scott I mean I would like to sort of say to response that is D, all of the above. Obviously, the growing as we deploy our unused capital I think is probably the biggest factor. We have a lot of a relatively high cost capital, which is effectively unused where as we deploy those resources you will see part of the returns coming from that. As I mentioned earlier and again in the prepared script we are looking at reducing our debt costs particularly some of our unsecured debt costs. We have already had made a significant impact on our term loan by reducing the margin by 50 basis points. So a combination of factors I think more a larger portfolio of high running aircraft, deployment of capital and reduced debt costs I think are the three factors that hopefully will get us there. And I think you would see our leverage going up slightly in the short-term and then sort of peaking and then trending downwards over time. But I think of as we deploy our capital, certainly that will be the major cause of our – of our higher returns.

[Scott Valentin:]

Okay. Thanks for that. And then on the buyback you guys, obviously the stock trading you bought it well below book value so accretive to book value, I think $29 million is what’s left in capacity I think based on quarter-to-date acquisitions, if you guys would finish that buyback call by year end or whenever it gets done, what’s the capacity for the next buyback?

[Colm Barrington:]

Well, I mean we do have a lot to catch, but we don’t have any other share buyback program in place at the moment. So, we will see how this runs over the coming months and we will view the situation after that, but we see that we are somewhat restrictive in the number of shares we can buyback because of our share of trading volume, so that capacity is going to allow us for a little while longer. So, let’s have a look at it when we come to the end of this program.

[Scott Valentin:]

Okay, fair enough. Thanks for taking my questions.

[Colm Barrington:]

Thank you.

[Operator:]

Thank you. And our next question comes from Mark Streeter of JPMorgan. Your line is now open.

[Mark Streeter:]

Good morning, everyone. So, just on the last comments trying to reconcile in my head, the goal to get your debt costs lower yet you are talking about increasing leverage somewhat in the short-term, you are already running at a leverage level higher than many of your peers. So, just trying to think sort of long-term here about how do you view the capital structure? It seems like the industry has been migrating more towards 2.5, 3 times leverage, you are running with higher leverage, obviously, have your ongoing buyback program. I know you have some excess cash to deploy and so forth. But if you are really focused on getting your debt costs down, should you be focused on de-leveraging or you think you are going to get there a different way maybe you can just clarify that in my head at least?

[Colm Barrington:]

Well, Mark, I think first of all, I think the important point to make is because of our financing structure, we can run the higher leverage than some of our peers. We do not finance on an overnight basis like some of our competitors. We finance in the long-term basis and we have primarily secured debts, which is amortizing. So, you don’t have big balloons coming out of this. So, we feel more comfortable about financing as a slightly higher leverage than the people who are totally dependent upon them on secured debts. So, we will continue to focus on reducing our debt cost as we have just done with the term loan, I mean, taking 50 basis points off a 400 million facility would have quite a significant positive impact. We do have too quite expensive unsecured facilities, which we are looking at, what we might do with those over the coming months. So, I think you will see us reducing the cost of our existing debts as we increase our leverage somewhat. So, that’s how we are going to try and get better returns on equity.

[Mark Streeter:]

And I hear all that, Colm. And so I guess the question is why even have unsecured bonds, why just not go the secured route on everything, because your cost of debt on the secured basis is so much lower than your cost of debt on an unsecured basis. If you are worried about debt costs inducing equity turns and I get all that, you are sort of kind of a little bit stuck in no man’s land with the unsecured strategy from the standpoint of the way the industry has been evolving on the unsecured front and what your peers have been doing? So, I am really sort of getting at what is the role of unsecured funding in the capital structure going forward? Is it smaller? Is it larger than where it is today?

[Colm Barrington:]

It will be proportionately smaller and potentially actually smaller as we go forward. But since we are proportionately smaller as we increased the portfolio, we will be primarily involved in the secured debt markets for those additional acquisitions. So, you will see more proportionately higher level of secured debts. The unsecured debt does provide us with a function that provides with great flexibility. It’s sort of on the short-term basis you considered almost as somewhere between debt and equity. So, it gives us flexibility to buyer aircraft quickly to make quick decisions and that is very helpful in running our business. So, we do see an ongoing role of our unsecured debt, but as I say, it will become a smaller proportion of our total debt.

[Mark Streeter:]

Perfect. That’s very helpful. Thanks, Colm. Appreciate it.

[Colm Barrington:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from Bill Mastoris of Baird & Company. Your line is now open.

[Bill Mastoris:]

I would like to follow-up a little bit on…

[Colm Barrington:]

Hi, Bill.

[Bill Mastoris:]

Hello, how are you, Colm? I would like to follow-up a little bit on Mark’s question and when you are thinking about maybe purchasing whether it’s new aircraft or whether it’s maybe a portion or an entire lease portfolio, should we kind of rethink how maybe your leverage or your comfort level should be as far as leverage goes? And so traditionally you have been in that 3.5 to 4 times net debt. Should that be higher now? I mean, you just got done explaining to Mark about the benefits of amortizing debt. So, is that level now been moved up, because of a very unique and very strong and robust aircraft leasing environment? Are you now comfortable at higher levels on kind of a run-rate basis?

[Colm Barrington:]

I don’t think you would see us going in the long-term basis above the levels that we have talked about the 3 times to 4 times, but that could be – that could peak for a period. For example, when one of our competitors made a major acquisition a few years ago their leverage went up to over 5x. We don’t expect CRs do that, but it could be that we made a significant acquisition to our portfolio of aircraft it could go up for period. So, on balance, we will be sticking in the 3x to 4x.

[Bill Mastoris:]

Okay. And then just thinking out loud a little bit about the unsecured debt, your 6.75 actually have a drop in the call price of roughly 1.75 points in December and you also have another unsecured issue that both could be refinanced at much lower rates right now and if you were to throw some of your unsecured assets behind that, I would suggest you that you probably could get a much lower rate. What are kind of your alternatives that you are evaluating there and again this is not necessarily a signal to the marketplace, but how are you thinking about the redemption of that debt, are you thinking about with secured debt or just a straight refinancing?

[Colm Barrington:]

It could be a straight refinancing with unsecured debt. I mean, I think we could probably borrow something close to 200 basis points lower than that is at the moment as you say there are various call penalties we have to consider, but we are certainly looking at options there over the coming months, Bill.

[Bill Mastoris:]

Okay. And then lastly away from the A320neo’s and the 737 MAX’s, I mean, are there any aircraft types that you are finding that are unusually attractive out there that you would like to add to your portfolio?

[Colm Barrington:]

Well, look, I would say there are some that are unusually attractive. Our game plan at FLY is to stay within the commodity type aircraft. So, you will not see us buying any kind of fringe type of assets that in our opinion are mispriced. So we will be staying with the core type of aircraft within FLY.

[Bill Mastoris:]

Okay. And that core I assume is that going to be largely restricted to narrow-bodies and that maybe with a Dreamliner or let’s say an A350 here or there, would that be a fair assessment?

[Colm Barrington:]

Pretty much what we have, what FLY is currently composed of right, which is the NGs, the COs, the neos, the MAXs 787s and we might stretch to do it A350, but unlikely at this point.

[Bill Mastoris:]

Okay, thank you very much. I appreciate it.

[Colm Barrington:]

Thanks, Bill.

[Operator:]

Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Matt Dallas for closing remarks.

[Matt Dallas:]

Thank you very much for everyone for joining our second quarter earnings conference call. We look forward to updating you again next quarter. You may now disconnect your line.

[Operator:]

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