Fly Leasing Limited
Q3 2017 Earnings Call Transcript

Published: 9 Nov 2017

[Operator:]

Good day ladies and gentlemen and welcome to the FLY Leasing Third 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 Matt Dallas with Investor Relations. Sir, you may begin.

[Matt Dallas:]

Thank you, and good morning. I am Matt Dallas, the Investor Relations Manager of FLY Leasing and I’d like to welcome everyone to our third quarter 2017 earnings conference call. FLY Leasing, which we will refer to as FLY or the company, issued its third 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 second 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 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 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 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 third quarter earning call. I’d like to focus my comments this afternoon to three main topics, first the industry’s overall fundamentals, next the competitiveness and challenges we face originating new investments and lastly, the progress FLY’s made over the past few years and its near term outlook. Starting with the underlying fundamentals of the airline industry, it’s probably no exaggeration saying that all the key drivers are as strong as I’ve ever remembered. This means going back at least past 30 years. Passenger demand continues to grow at rates well above world GDP growth and the strong performance has been seen across all the major areas of the world. Rarely do we see such diverse and strong results. For example, recently announced passenger growth in August was 7.2% worldwide as compared to a year ago and no single market shows less than 5% growth. Asia Pacific, which includes India and is the largest single market, grew at 9%. North America and Europe with combined total over 50% of the world’s market grew at 7% and 6% respectively. Furthermore carriers are being prudent in growing their capacity resulting in load factors reaching all time highs. Fuel prices remain in check and the capital markets remain very accommodative. As a result, airlines around the world are earning near record profits. Even the recent failures this summer and the continuing threat of renewed geopolitical risk had failed tohaltthe growth and demand for air travel worldwide. As I mentioned in my remarks throughout the year, the competitive landscape of finding attractive aircrafts for investment remains challenging. The continuing influx of new capital, primarily from China has driven up prices and lowered returns. As a result, we’ve avoided competing on certain sale lease back campaigns, preferring to source one off deals through private negotiations. We continue to be opportunistic and optimistic that we will find attractive deals, even if it’s difficult to predict the timing of the deal flow. So far this year we’ve closed nearly $456 million in new investments against our budget of $750 million. While we may fall short of our budget in 2017, we still believe that it’s a reasonable target for FLY and we will continue to budget $750 million in new acquisitions annually going forward. Lastly, I want to review at a high level the progress we’ve achieved at FLY. We’ve completed transformed our fleet over the past couple of years and we see very few additional sales in the coming years. Our focus will be on growing the portfolio with modern, fuel efficient aircraft that are in high demand by airlines around the world. While the sale lease back market is likely to be the dominant source of new equipment, I can promise you we are evaluating every acquisition possibility big and small. We are confident that we can continue to grow FLY’s earnings and increase its ROE, while remaining faithful to our promise of not just growing for growth sake. And as you will hear from Colm and Julie later on in this call, we’ve completed or are in the process of completing several dead initiatives that further lower FLY’s all in borrowing cost while de-risking our balance sheet and moving our unsecured debt maturities. On the remarketing front, we’ve completed all our regularly scheduled 2017 expiries. We saw strong demand for FLY’s aircraft and as higher than expected lease rates, particularly for the Boeing Narrow Bodies. The only outstanding remarketing for 2017 is the A321 that came out of Air Berlin prematurely. We are seeing strong interest and expect to commit to a long term lease for this aircraft within the next 30 days. For 2018 FLY has only five aircrafts left to remarket and three of them are in the fourth quarter of 2018. We are anticipating no problems placing these aircrafts at attractive rates. Before handing the call over to Colm, I want to touch briefly on the recent European Airline Bankruptcies and insolvencies of Alitalia, Monarch and Air Berlin. While FLY has no exposure at either Alitalia or Monarch, FLY did have two planes at Air Berlin, representing approximately 2% of our fleet value. The first a 17 year old A330‐200 was returned in October and we have already successfully remarketed to another airline at essentially the same lease rate as that under the Air Berlin lease. The other aircraft, a three year old A321 was returned this month and as I mentioned earlier, we’ve identified plenty of interest in this aircraft and expect to commit to a lease of this plane with the next 30 days. One last item, in September BBAM announced that GIC, the sovereign wealth fund of Singapore and one of the largest and most sophisticated investors in the world had agreed to acquire 30% of BBAM from its existing owners. As the CEO of BBAM, I’m very proud of our new partnership with GIC. We believe GIC adds tremendous value and resources to our platform and we are extremely pleased and excited about their investment. The transaction closed as expected last month. Now I like to turn the call over to Colm Barrington, FLY’s CEO.

[Colm Barrington:]

Thank you Steve and good morning everyone and thank you all for joining us on the third quarter earnings call. FLY has continued to increase operating lease rental revenue as our new aircraft acquisitions, including the three aircrafts acquired in quarter three have generated additional revenues and earnings. Rental revenue was 6% higher in the same quarter one year ago. We did not sell any aircraft in the quarter as compared to a $4.1 million gain on the sale of aircraft in the same period last year, and so our total revenue is only marginally ahead of last year. For the nine months to September, our operating lease rental revenues were 7% ahead of last year. Our adjusted net income of $14.9 million for the quarter was just behind last year’s due to the significant aircraft sales gains in the same quarter last year. Our share repurchases improved our adjusted net income however, and our net income per share was up by over 10%. Our share buyback program totaled approximately 1.5 million shares in the quarter on top of the significant repurchases in the previous two quarters. All of these factors contributed to our adjusted return on equity of 10.6% in the quarter. Our net income significantly and negatively impacted by the $22 million impairment of the 17 year old Airbus A330‐200 aircraft that was returned in the fourth quarter following the bankruptcy of Air Berlin as Steve referred to earlier. While we have sourced a new lessee for the aircraft and substantially the same rental terms of the previous lease, we have determined that we are likely to part out the aircraft at the end of this new lease, resulting in a lower residual expectation and therefore the impairment. Positively we have recognized $13 million of end of lease income from the terminated Air Berlin lease in quarter four. As a result of the actual economic impairment in respect to this aircraft, it will be reduced to approximately $9 million. FLY acquired three more aircrafts in the quarter, an investment of $114 million. We added to our latest generation aircraft, the purchase of one Boeing 737 MAX 8. Overall the three aircrafts we acquired at an average age of three years and remaining lease terms that average eight years. These three aircrafts will contribute approximately $12 million of annual revenues. Our measured approach to acquisitions is continuing to go rent-to-revenue, an increase of 10.5% between quarters one and three of this year and is contributing to core net income. Year-to-date FLY has acquired 10 aircrafts with an investment of $456 million. These aircrafts, including an aircraft identified for 2018 are relatively new, with an average age of two years and include two new Boeing 737 MAM 8s. The average remaining lease term is 10 years. On an annualized basis the aircraft that we have acquired and identified this year will add $51 million to our rental revenues and $16 million to our pretax income and will produce 12% return on equity. Based on our reduced share count, the positive impact on adjusted EPS will be approximately $0.50. We continue to seek out additional attractive acquisitions to add to and to enhance FLY’s portfolio. While we have more than $2 billion of additional buying power, we’ll continue with our prudent acquisition strategy and will only deploy our capital on transactions that enhance our portfolio and are increase to earnings and return on equity. As Steve has already said, we are evaluating numerous opportunities large and small and are highly confident that we will continue to grow our fleet. We’ve also continued to execute on our share repurchase program. So far in 2017 we have repurchased 3.7 million shares at an average price of $13.32 per share for total cost of $49.5 million. These repurchases represent a reduction of 12% in FLY’s share count at the start of the year. At the end of September FLY had 28.7 million shares outstanding and our net book value per share was $18.95. We continue to believe that our shares represent very good value. We have $17 million remaining in our current share repurchase program and we’ll continue to repurchase shares. We’ve also continued to optimize our capital structure. In October FLY issued $300 million of 5.25% notes due in 2024 in order to discharge its 6.75% notes due in 2020. In addition to stretching out our debt maturity profile, this activity reduces FLY’s annual cash interest cost by approximately $10 million of which approximately half comes from the coupon reduction and approximately half comes from repaying $75 million of higher cost debt. In addition, on November 1 FLY re-priced its largest debt facility, a $437 million term loan. The 2% margin on this facility is now amongst the lowest of any debt facility in our industry. The annual interest saving from the re-pricing is approximately $1 million. These initiatives will however have a negative impact on our quarter four net income, with debt extinguishment and modification charges of approximately $21 million, of which $4 million will be non-cash. These one-off costs represent good value that they are contributed to 25 basis point reduction in our total debt cost that have increased our average debt maturity to 6.4 years. With that, I will hand you over to our CFO, Julie Ruehl who will take you through our financial review, including quarter four guidance.

[Julie Ruehl:]

Thank you, Colm. We are reporting a net loss of $12.5 million or $0.43 per share for the third quarter of 2017. The net loss for the quarter was driven by a $22 million impairment charge as Colm noted earlier. Net income for the same period in 2016, which included gains from aircraft sales, but no aircraft impairment was $22.9 million or $0.70 per share. Our adjusted net income was $14.9 million or $0.51 per share as compared to $17.3 million or $0.53 per share in the year ago quarter. Our operating lease rental revenues are up 6% to $87.6 million with a comparable fleet size as aircrafts acquired recently are producing higher rents. Total expenses were $96.2 million and are up primarily due to the impairment change as well as increased depreciation and interest from aircraft acquisitions. As Steve mentioned, we had two aircrafts; one A321‐200 manufactured in 2015 and one A330‐200 manufactured in 2001 on lease to Air Berlin, which commenced insolvency proceedings in August. There is no negative impact to the third quarter rental revenue as a result of the insolvency filing. The lease of the A330 was terminated and the aircraft returned to us in the fourth quarter and as a result we will recognize end of lease income of approximately $13 million in Q4. As Steve noted, we have already remarked this aircraft to another airline and expect the lease to begin later this month. The lease of the A321 was also terminated in the fourth quart, which will result in end of lease income of approximately $4 million in Q4. The third quarter impairment charge relates solely to the A330. No impairment was indicated for A321 that had been on lease to Air Berlin. Now let me cover a few items of guidance. For the fourth quarter of 2017 we are expecting operation lease rental revenue of $87 million to $88 million. We expect amortization of lease incentives of approximately $2 million. We expect end of lease income of $16 million to $17 million. We expect a gain on sale of aircraft of approximately $4 million due to a previously contracted sale. Depreciation expense is expected to be approximately $34 million. We expect interest expense of approximately $32 million. Debt modification and extinguishment cost are expected to be approximately $21 million. Maintenance and other costs are expected to be $1 million to $2 million. We expect SG&A expense of 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 the appendices where we have our cap table and a reconciliation of adjusted net income and adjusted SG&A. With that, I’ll turn it back to Colm for his closing remarks.

[Colm Barrington:]

Thank you, Julie. As you have seen from our presentation today, FLY continues to operation very strong industry conditions, which has allowed us to operate at 100% fleet utilization year-to-date and to find homes for aircrafts that have been returned prematurely from a failed airline. Based on continued strong global air traffic growth, we expect these strong industry conditions to continue for the foreseeable future. Meanwhile FLY continues to invest in that future, investing in our portfolio, that we now have a fleet with an average age of 6.2 years and 6.5 year average lease term. We have also invested in our capital structure such that our average debt term is now 6.4 years, closely matching all these profiles. FLY has the resources to grow with over $2 billion of buying capacity. We’ve added significantly and positively to our fleet already this year and are setting our sales at $750 million growth target for 2018. For 2018 the combination of these initiatives provides FLY with the basis to achieve the double digit adjusted ROE and increased net income. We are now ready for your questions. Thank you.

[Operator:]

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

[Colm Barrington:]

Cathy, are you there?

[Operator:]

Ms. O’Brien, if your phone is on mute, please un-mute it. If your phone is on speaker mode, please lift your handset. And our next question comes from Gary Liebowitz with Wells Fargo. Your line is now open.

[Gary Liebowitz:]

Thanks operator. I’m hoping you could maybe clarify the magnitude of the impairment charge. Wasn’t this the same plane that was impaired back in the late last year to under $35 million and so if your impairing another $22 million, then you’re looking at a plane that might have like a $12 million book value. Are those numbers about right and that would seem like a very conservative mark?

[Julie Ruehl:]

Gary, this is Julie. Yes, we did take an impairment charge on that aircraft last year. The additional impairment is largely due to a change in our estimated value at the end of the new lease.

[Gary Liebowitz:]

So a 17 year old A330, are you assuming that the engines are going to be at zero life condition or – I mean how did you get to a number so low?

[Colm Barrington:]

Gary, this is Colm. It’s not quite like we represented. I mean we are taking $13 million of end of lease income into our net income in the fourth quarter in respect to this aircraft, but we determined that at the end of the current lease this aircraft will be approximately 20 years old and this will probably be a candidate for a part-out. So we’re taking a part out residual. As a result of that we are reducing our residual expectation and therefore we’re taking the impairment today. So I think we’re being quiet conservative on this. Hopefully we can do a little bit better, but this is what we determined as the best course right now.

[Gary Liebowitz:]

Okay. I am just surprised by the magnitude of the impairment. And Steve, maybe you can talk about more broadly what you’re seeing in terms of customers, the percentage of lease explorations that are getting extended or renewed these days versus returned. I am thinking more maybe perhaps with your view of the overall BBAM portfolio, a much larger sample to what’s going on out there in the market.

[Steven Zissis:]

Yeah, like I said in my prepared remarks, the demand for used aircraft is probably one of the best markets I’ve seen since I joined the industry. I think overall across the BBAM fleet we must be averaging 50% to 60% of the fleet being extended, maybe a little higher than that Gary. So it’s been pretty strong and there is no lack of demand for used aircraft. So I am actually very surprised how strong the market is. Now I think a little of that is probably exacerbated by the fact that some of the airbus are being delayed. So you got people looking for the left to replace the deals that are slipping, but overall the market is very good.

[Gary Liebowitz:]

Okay, and last question, with the pipeline being not as robust as perhaps it’s been in the times past, is there a chance you exhaust the remaining share repurchase by the end of this year?

[Steven Zissis:]

Well, I’ll let Colm comment on the share repurchase, but as I said, finding adequate deals for FLY has been a challenge and as we’ve said on many calls, we’re not going to just grow for growth sakes, even though the public market seems to embrace that. We represent I think deep value, good investments at FLY and so when we find deals that work we’re happy to bring them on. But it’s been a lot slower than we expected, so we’re at $450 million of acquisitions this year. Our target is $750 million. It’s very unlikely we’ll get to $750 million by the end of the year. We’re probably going to end up in that $500 million, $550 million range, but next year we’re going to still target $750 million and see how successful we will be. On the share repurchase, I’ll leave that to Colm.

[Colm Barrington:]

Yeah Gary, I mean we are actively in the market everyday and we have a program which limits the amount of shares we can buy on any one day subject to the volume in the market. So while we’re hopeful of extending most of this program by year end, we may have a few million dollars left by the time gets to December 31, but we are still actively in the market every day.

[Gary Liebowitz:]

Thank you very much.

[Operator:]

Thank you. And our next question comes from Justine Fisher with Goldman Sachs. Your line is now open.

[Justine Fisher:]

Hi, how are you?

[Colm Barrington:]

Hi Justine.

[Justine Fisher:]

The first question that I have is just on that remarketing from Air Berlin. When you say that it was at the same rate that it was before, was it also the same terms on that lease, because I think investors are obviously focused on how well the market is absorbing that capacity and it seems to be doing pretty well. You know Avalon said yesterday too that it was able to remarket aircraft well. So is it kind of same lease rate, same terms as well?

[Steve Zissis:]

Yeah, the lease rate was pretty much on top of the Air Berlin lease rate. I just thought we were able to move it within 30 days, which I think is testament on the demand of the A330, which I think has gotten probably an unfair wrap recently in the last couple of years. It’s a much more liquid and remarkable aircraft than we even expected and the only thing I guess I would say is that as Colm had mentioned, we are going to a part-out value, but you know we’ve taken in $13 million of reserves as part of that. So that’s what reflects kind of the different terms in the deal.

[Justine Fisher:]

Okay, now that was my other question is and you know I am not aiming to open the can of worms that is the useful life to bait, but I think you know typically people would expect a 25 year useful life maybe out of this asset and obviously you guys were expecting maybe another lease after that or you wouldn’t have taken the impairment in. So is the fact that you guys expect to part it out after this next lease at about 20 years, is that specific to this aircraft or do you think that maybe that because of you know new technology like NEO is coming on, you think that those might – the availability of that technology might mean that its harder to get that very last 20 year plus lease for its A330ceo technology and so you know that means to be sought of as a 20 year asset as opposed to longer.

[Steve Zissis:]

I think our view is that obviously this aircraft could fly for another seven or eight years, but because we’re taking in the reserves and the income as prescribed by our accounting, we made the decision that perhaps at the end of this new lease that we don’t want to make the investment in the maintenance of the aircraft to keep it flying. So therefore we thought the most conservative approach was to think about it as a part-out. Now that may change right as we get down the road here and decide that there was good demand for this aircraft and we’ll reinvest in it and keep it flying.

[Justine Fisher:]

Okay.

[Colm Barrington:]

I think we’ve seen – I don’t think we should do any total conclusions about the useful lives of A330’s in general. Just this aircraft will be coming back from its current lease and it will be a 20 year old aircraft. Remarketing that aircraft to another airline at that point in time will possibly present some difficulties and that’s why we’ve taken the conservative assumptions we’ve part it out.

[Justine Fisher:]

Okay, and another question that I have is just on the use of cash if you guys don’t find the opportunities that you want. I think investors applaud the discipline that you’re not going after the lowest sale leaseback business just to grow for the sake of growing, but if you can’t find enough attractive deals to use the cash that you expect, how do you guys expect to play the cash? I mean I’m assuming additional share repurchase. You could re-up that program, but then I know the liquidity of this stock is always something investors ask about in terms of use of cash. So would you guys pay down more term loan? I mean what do you do with that cash if you can’t find the opportunities?

[Steve Zissis:]

Well there’s always three things you can do with it right; you can repurchase your shares, you make a special dividend, you can de-lever the balance sheet. So I think we got plenty of levers that we can pull if we can’t find proper investments. Given that we own 14% of the shares, you can bet that we’ll be doing the right thing for the shareholders.

[Colm Barrington:]

If you can see Justine, this year I mean we have already bought back a significant number of shares, approximately $50 million worth and we just announced we repaid $75 million of our higher cost on secured debts. So we have actually used the cash to de-lever to a certain extent already.

[Justine Fisher:]

Okay, thanks so much. I appreciate the time.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from Jamie Baker with J.P. Morgan. Your line is now open.

[Nish Mani:]

Hey, good morning guys. This is actually Nish Mani on for Jamie. A question about acquisition opportunities. One of the largest aircraft leasing platforms is potentially up for sale, a sponsor had noted as such for the past couple of weeks and I am wondering how your thinking has evolved on potentially acquiring at least a sliver of that portfolio or potentially evaluating that as an opportunity. I just wanted to get a sense if that’s on your radar.

[Steve Zissis:]

Yes look, we look at almost everything that’s available in the marketplace, so if $1 billion or $2 billion portfolio comes available and it works for us and it gives us the right returns, we have no hesitation in pulling the trigger on that and as you know we’re in constant discussions with all the major lessors about buying either once he chooses or small portfolios from them. So we’re game to find acquisitions that work.

[Nish Mani:]

Okay, and is there a particular sweet spot in terms of vintage or aircraft type that you guys are more biased towards in evaluating a portfolio sale or are you looking across the spectrum processes.

[Steve Zissis:]

Well, we look across the spectrum and remember that BBAM has got three silos of capital that it can deploy across the portfolio, so we’re able to do much more varied portfolios than just lie on its own, but with respect to FLY, we made it very clear that we’re going to stay on the younger side of the age bracket and we’re going to avoid going down the mid life and part-out type of deals.

[Nish Mani:]

Okay, as been expected. Great, thank you very much for the color. I appreciate it.

[Colm Barrington:]

Thank you.

[Operator:]

Thank you. And our next question comes from Catherine O’Brien with Deutsche Bank. Your line is now open.

[Catherine O’Brien:]

Hi there, can you hear me now?

[Colm Barrington:]

Yes, we can Catherine.

[Catherine O’Brien:]

Hi, sorry about that. So can we just talk a little bit of the new aircraft we purchased this year, you know like the MAX 8 you got this quarter. Are these primarily coming from airlines who are using sale lease factor as their financing option or are these from airlines that have over ordered and you’re taking that delivery and placing it with someone else.

[Steve Zissis:]

We have a mix of both. So we did pick up some brand new naked NGs and place them onto a flight carrier in Europe and we also did sell lease backs on MAX’s with an Asian Airline. So we’ve got a mix of both. Obviously we have to work a little harder these days to find deals that work. So picking up you know excess aircraft to airlines around the world and placing them with other airlines and [inaudible] is kind of our forte. So you’ll see us doing more of that if it becomes available.

[Catherine O’Brien:]

Sure. And so sorry, just a clarification question. You said the NGs, those are…

[Steve Zissis:]

Yeah, those are brand new coming from…

[Catherine O’Brien:]

And then the MAX fleets are sale leaseback?

[Steve Zissis:]

Correct.

[Catherine O’Brien:]

Okay, cool. Thank you. And then can you compare their turns on these new aircrafts you have taken versus others that maybe you know a couple of years old?

[Steve Zissis:]

Look it’s hard to generalize, because the market is very competitive. But you know returns across the industry are ranging, I’m going to guess in the eight low teens type of returns. So it just depends on the type of deals that you originate. On the aircraft that we picked up naked I would say that the returns were better than our minimum 12%.

[Catherine O’Brien:]

Okay, great. Thanks for that color. And then maybe just one follow-up on the cash deployment question. Going into next year given that you are looking at – it sounds like a bunch of opportunities on the acquisition side and you might be able to complete your current authorization by year end. How do you think about the mix of you know, size of potential new program versus the acquisition opportunities you expect to have next year?

[Colm Barrington:]

I think Catherine, as we’ve said before our primarily objective is to grow the portfolio sensibly and as long as we continue to source transactions to do that, that was where we will deploy our capital primarily. We may do some limited share repurchases at the same time. But look, we review the situation on an ongoing basis and as I said earlier, we used some cash to pay down debt, some to buy shares and some to aircraft this year. But I would say primarily we would like to grow the portfolio with good prudent deals and depending on how we succeed at that then we’ll look at other ways to deploy our cash.

[Catherine O’Brien:]

Okay, great. Thank you so much for the time.

[Colm Barrington:]

Thank you.

[Operator:]

Thank you. And our next question comes from Jason Arnold with RBC Capital Markets. Your line is now open.

[Jason Arnold:]

Hi, good morning guys. I was just wondering if you can talk in a little bit more detail on the GIC investment and BBAM and what that might mean for FLY.

[Steve Zissis:]

Well look, we are very excited to have GIC as our partner. As I said on my prepared remarks, they are one of the more sophisticated and largest sovereign wealth funds in the world. They’ve had prior aviation investments, which have turned out to be great investments for them and from BBAM perspective its long term passive capital that wants to build up a platform, which is exactly what we want for FLY also. So it’s not just a one-off purchase opportunity. It’s about build the BBAM platform and franchise around the world which includes FLY and Incline, which is our aviation fund.

[Jason Arnold:]

Okay, I guess could you envision them. I mean would FLY become something that could be more interesting to them to growth the platform with in particular or do you just kind of see it more well rounded, big picture, continued uptick in the investment or growth in the investment over time.

[Steve Zissis:]

Well look, when they invested in BBAM they looked at our three silos of capital that we manage; obviously FLY was one of them. I think they are very taken by the FLY situation. They realize it’s an undervalued investment that’s out there, but with respect to what their plans are and how they think about it long term, I think we rather let GIC make those statements than us.

[Jason Arnold:]

Okay, great. Thank you for the color.

[Operator:]

Thank you. And our next question comes from Kristine Liwag with Bank of America. Your line is now open.

[Unidentified Analyst:]

Hey guys. This is Caitlin [inaudible] on for Kristine today. I was just wondering, would you be able to discuss your general strategy regarding a struggling airline and sort of what point do you repossess the aircraft? Is it after a certain number of days of late payments and then a quick follow up to that, if you could discuss the airlines that are currently on your watch list today that would be great? Thanks.

[Colm Barrington:]

I don’t think – I think it’s a bit like asking how long is a piece of string Caitlin; each situation is different. Sometime you can see airline heading towards the bankruptcy wall. All the time this happens very suddenly. So each situation we find differently, we normally negotiate with the airlines. We see how – what the chances of success are. I mean as you know with Air Berlin, very unique circumstance. They were being supported by Etihad. Etihad had a change at the top and now that they have a change of policy and decided they weren’t going to support them any longer, so that all happened quite suddenly. But the reposition was very orderly. They paid us some more money to keep the aircraft flying until they got themselves sorted out and then they gave us back the aircraft. So we have no loss of rental income. Any suspension of rentals made up by the security deposits which we held and they actually paid us more money to keep the aircraft for a little longer. So that one was very orderly and we are able to meanwhile start remarketing the aircraft and Steve’s mentioned one is already signed up and we have a few prospects for the other one. So I would say each situation is different. But overall we will try and work with the airline as long as possible and we’ll only take the aircraft back when they obviously can’t pay us any longer.

[Unidentified Analyst:]

Okay, great. That’s very helpful. And then do you have any airlines that are on your watch list today or do you not really look at it at way.

[Colm Barrington:]

If you look at all of our lessees every day, we don’t have anybody that we are particularly worried about right now. We’ve had the Air Berlin thing which is actually quite sudden because of the Etihad withdrawal support. That was nobody who we are extremely worried about right now and our receivables situation is in pretty good shape.

[Unidentified Analyst:]

Awesome. Thank you so much. Very helpful.

[Colm Barrington:]

Pleasure.

[Operator:]

Thank you. And at this time I’m not showing any further questions. I would now like to turn the call back to Matt Dallas for further remarks.

[Matt Dallas:]

Thank you everyone for joining us for our third quarter earnings call. We look forward to updating you again next quarter. That ends today’s call. You may now disconnect.

[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.