Fly Leasing Limited
Q1 2015 Earnings Call Transcript

Published: 8 May 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to your FLY Leasing first quarter earnings call. [Operator Instructions] Please note, today's call is being recorded. I'd like to now introduce your host for today's program, Mr. Matt Dallas. Sir, please begin.

[Matt Dallas:]

Thank you, and good morning. I'm Matt Dallas, the Investor Relations Manager at FLY Leasing, and I'd like to welcome everyone to our first quarter 2015 earnings conference call. FLY Leasing, which we will refer to as FLY or the company throughout this call, issued its first quarter earnings results press release earlier today, which is posted on the company's website at www.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 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. I'd like to begin the call today by reading the following safe harbor statement. This conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements regarding the outlook for the company's future business and financial performance. Forward-looking statements are based on current expectation and 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. FLY expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views or expectations or otherwise. A replay of this call is available for 1 week from today. An archived webcast of this call will be available for 90 days on the company's website. I would now like to hand the call over to Steve Zissis, the President and CEO of BBAM. Steve?

[Steven Zissis:]

Thank you, Matt, and welcome to our first quarter 2015 earnings call. FLY is starting off 2015 strongly. Colm will get into the details in a moment. But first, I'd like to provide an update on our industry. We are seeing positive industry conditions and trends continue. The global airline industry, which is our customer base, is performing well. Long-term forecast for the airline industry is to grow 5% annually. For the first 3 months of 2015, global airline passenger traffic grew 6.1%. And it's expected to grow 7% this year, according to IATA. This strong growth in passenger traffic, coupled with declining costs, is translating into rising airline profits. Global airlines achieved actual profits of $19 billion in 2014. For this year, airlines have forecasted to achieve even stronger profits of $25 billion. These increased profits are giving airlines more confidence to grow and conduct fleet planning farther into the future. This equates to increased interest for leased aircraft and at longer-term commitments. This is driving demand for new and young narrowbodies, which comprise the majority of FLY's fleet. Lease rates for 737s and A320 Family remained strong. These firm lease rates are all the more impressive given that these increases are occurring amidst the backdrop of lower interest rates and financing costs. FLY continues to focus on growing its fleet, which is improving its fleet metrics. We continue to see attractive opportunities in the secondary aircraft market as well as the sale-leaseback market. BBAM has been a leader in the sale-leaseback market for 25 years, and we use our long-term relationships with airlines around the world to seek out the most attractive opportunities for FLY's portfolio. With more than $120 billion of aircraft deliveries every year, the sale-leaseback market offers a tremendous pool of acquisition opportunities. We believe FLY's focus on the secondary market, where we have access to brand-new aircraft at attractive prices, will fuel the company's growth for the foreseeable future. While we expect the majority of the FLY's acquisitions in 2015 to come from the sale-leaseback market, we also continue to find other attractive acquisitions from nonairline sellers. In 2015, we expect FLY to achieve strong growth for a third year in a row. We expect to acquire at least $750 million of new aircraft. With $475 million of acquisitions either completed or identified, we're well on our way to achieving this goal in 2015. We will continue to take advantage of vibrant capital markets and actively manage FLY's capital structure. In addition, the market for mid-life aircraft has been particularly robust, providing increased opportunities to sell older aircraft out of FLY's fleet, which we will continue to progress our strategy of renewing FLY's fleet and improving the company's earnings and cash flow. I will now turn the call over to Colm.

[Colm Barrington:]

Thank you, Steve. And good morning, everyone, and thank you for joining us on our Quarter 1 2015 earnings call. FLY is off to a strong start with a 34% increase in first quarter revenues to $123 million. This increase results from our significantly improved portfolio, specifically a larger fleet of younger aircraft. Meanwhile, we are reporting net income of $17.3 million for the quarter or $0.41 per share. Both of these amounts were significantly ahead of the same quarter last year and once more flows from the increase scale and improved metrics of our business. Once again, FLY continued its attractive dividend policy. And on May 20, we will pay a dividend of $0.25 per share in respect of Quarter 1. Following the payment of this dividend, FLY will have paid 30 consecutive quarterly dividends totaling $7.62 per share. FLY has paid a dividend every quarter since the company's launch on the New York Stock Exchange in 2007. All this has resulted in an attractive adjusted return on equity, which was 14% on an annualized basis during the quarter. This improving ROE is a result of our accretive fleet acquisition and reducing costs, principally our lower cost of debt and lower SG&A. FLY has made major steps to improve its fleet metrics with consequential effect of improving our financial returns. In the 2-year period from the end of 2012 to the end of 2014, the value of FLY's aircraft grew from $2.6 billion to $3.7 billion, an increase of $1.1 billion or 42%. These improved portfolio metrics are the result of the investment of $642 million in 14 aircraft with an average age of 2 years in 2013 and a further investment of $952 million in 22 aircraft with an average age of 2.6 years in 2014. As Steve has already outlined, for 2015, we are planning to -- on investing $750 million in additional aircraft, which will be primarily new aircraft. To date, we have acquired and identified for acquisition aircraft valued at $475 million. These new aircraft have an average age of less than 4 years, and their addition to our portfolio will result in further improvements to its metrics. Also, as Steve has mentioned, we continued to find opportunities in the airline sale and leaseback market and in the secondary market, particularly from other lessors who are seeking liquidity and where FLY's and BBAM's track record gives us advantages over many competitors. FLY has ample financial resources to fund its growth targets. At the end of March, we had $280 million of unrestricted cash with continuing access to attractive debt financing. These sources and the proceeds from the sale of older aircraft will provide us with funding to meet our growth targets in 2015 and beyond. From 2012 through 2014, FLY sold a total of 22 aircraft with an average age of 13 years and generating a total gain of $33.6 million. This gain represents a premium of more than 12% for the net book value of the aircraft sold. FLY has demonstrated again and again we can sell aircraft from our portfolio at premiums to their net book value. And these sales have consistently been older aircraft from our fleet. As a result of these purchases and sales, we've reduced our average fleet age from 9.4 years at the end of 2012 to 8.1 years at the end of March and has increased our average lease term from 3.2 years to 5.1 years in the same period. FLY seeks to substantially comprise the most up-to-date and in-production aircraft types, particularly the Airbus A320 and Boeing 737 next-generation families. And our portfolio includes only a small of out-of-production aircraft. Our fleet age will be further improved when we complete the contracted sales of 8 Boeing 757s later this year. These sales are in addition to 3 aircraft sales already completed this year. And we'll continue to manage our fleet age by disposing of older planes. And in this regard, we are finding strong market conditions for the sale of mid-life aircraft. The increased scale of our portfolio, along with the other improved metrics described above, is resulting in our improved financial returns and a stronger company. And we can make further progress. While we are focused on improving our portfolio metrics, we also continue to focus on reducing costs. In particular, we have paid significant attention to the costs of our secured debt, which represents over 76% of our total debt, a percentage that we expect to increase over the coming year. Our secured debt interest cost has been falling consistently over the last 4 years to 5.1% in 2011 to 4% at the end of March this year. We expect to see this cost reduce further as we roll over a significant number of interest rate swaps, which were taken at the time we completed our aircraft securitization in 2007 and when interest rates were much higher than they are today. Also, in April, we were -- we successfully repriced our 2012 term loan, which has a current balance of $446 million. Industry pricing we reduced the total cost on the loan by 1% through a combination of reduction of 75 basis points to the margin and 25 basis points to the LIBOR floor. The interest cost on this secured facility, which is our second largest facility, is now reduced to 3.5% per annum. And as a result, FLY's annual interest costs will be approximately $4 million lower than before. We're also finding that our new aircraft acquisitions can be financed extremely attractively with one-off bank markets and term bank debt at the cheapest rates in 8 years and in tangible supply. We're also focused on reducing our SG&A. The calculation of adjusted SG&A, which really [ph] reflects the true cost of running FLY, we have knocked out share-based compensation, withholding taxes for noncash foreign exchange gains and losses from the GAAP measure. Our adjusted SG&A as a percentage of total revenues has been reducing steadily quarter-by-quarter since the beginning of last year. It was a very competitive 7.7% of revenues to the quarter just completed. We expect to see further reductions in our SG&A percentage as the year progresses. FLY continues to focus on improving shareholder value through improving return on equity. Our adjusted return on equity was approximately 11% in each of 2013 and 2014 and increased to 14% annualized as of the first quarter of this year. While our Quarter 1 2015 performance looks particularly strong due to the high end-of-lease income in the quarter, we expect continued double-digit returns in the future. I would encourage shareholders to explore the adjusted ROE calculations we've provided for the first time. We want to provide a way for shareholders to assess FLY's economic performance and compare our performance to the other public lessors. In particular, it's worth focusing on some of the costs, including noncash fair market value adjustments related to the acquisition of the 49-aircraft portfolio at the end of 2011, amortization of debt discounts, lease premiums and discounts. Additionally, FLY does not paid meaningful cash income taxes. We use available capital allowances, but we do not expect to do so in the foreseeable future. As a result, we've made adjustments for these and other nonsimilar noncash items in calculating adjusted net income. These adjustments are shown in the appendix to today's presentation. We will also continue to put strong emphasis on improving our return on equity, particularly by continued focus on fleet growth and selling underperforming assets. The acquisition of new aircraft resulted in deployment of capital that's currently on our balance sheet and is costing us interest expense without corresponding lease revenues. We will also see further reductions to the cost of our debt, continuing improvement in our SG&A costs. I'll now hand you over to Gary Dales for the financial overview. Gary?

[Gary Dales:]

Thank you, Colm. As Colm mentioned, we're reporting net income of $17.3 million or $0.41 per share on total revenues of $122.5 million. This compares with net income of $3.6 million and $0.07 per share for the first quarter of 2014. The increase in net income is due primarily to higher operating lease revenue. Total revenues increased over 34%. There was a 14% increase in operating lease rental revenue compared to the same quarter in 2014 as FLY grew its fleet in 2014 and 2015. Additionally, there was $21.9 million of end-of-lease income in the first quarter of 2015 compared to $3.7 million in the same quarter last year. Total expenses for the first quarter of 2015 were $103 million. This compares to $87 million for the same period in the previous year. The increase in expenses is primarily due to depreciation of aircraft acquired during 2014 and 2015 and interest expense associated with debt used to finance the aircraft acquisitions. Depreciation expense also includes $2.2 million associated with the Boeing 757s that will be sold later this year. These aircraft are being depreciated down to their estimated sales prices. Overall, interest expense continues to decrease due to refinancing and repayment of our outstanding debt. As Colm mentioned, in April we repriced our term loan. This repricing will reduce annual interest expense by approximately $4 million. We will see the benefits of this repricing in our financial statements beginning in the second quarter. Selling, general and administrative expenses decreased $1.4 million from $9.6 million to $8.3 million. The $4 million of debt modification and extinguishment costs relate to the termination of the aircraft acquisition facility. We believe we can finance our aircraft acquisitions through other more favorable financing options that are available to us. Before I get to guidance, let me briefly cover a couple of items on our balance sheet. At March 31, 2015, assets totaled $4.1 billion, of which $3.7 billion was invested in flight equipment held for operating lease. This is a 19.3% increase in the net book value of our fleet from 1 year ago. Our total cash balance was $416.6 million, of which $280.3 million was unrestricted. At March 31, 2015, we have 17 unencumbered aircraft with a net book value of approximately $632 million. So plenty of capacity to fund our growth plans. Now let me cover a few items of guidance for the second quarter of 2015. We are expecting operating lease revenue to be between $103 million and $105 million, which net of approximately $6 million of lease incentive amortization will result in operating lease revenue of between $97 million and $99 million. Our end-of-lease income is expected to be between $2 million and $4 million. End-of-lease income is a regular part of our operating lease revenue. However, the timing of its accounting recognition is difficult to predict. Depreciation expense was between $49 million and $51 million. We expect interest expense of between $37 million and $38 million. We will expense approximately $3 million in debt modification and extinguishment costs, the majority of which relates to our recent term loan repricing. Maintenance and other costs will be between $2 million and $3 million for the second quarter of 2015. Finally, as Colm mentioned earlier, we have included 2 new non-GAAP measures. The first is adjusted return on equity, and the second is adjusted selling, general and administrative expense. You can find these calculations in the appendices. We use these measures to assess our operating performance on a consistent basis from period to period. In addition, these measures help us compare our performance to our peers. With that, let me turn it back to Colm for his closing remarks

[Colm Barrington:]

Thank you, Gary. I hope, everyone, that over the last few minutes we have given you an appreciation of continuing progress we're making at FLY in our published results, particularly our increased quarterly revenues and earnings. We've also continued our long track record of paying attractive quarterly dividends. For the last few minutes, we have talked about our continued progress in attracting -- in acquiring attractive aircraft for our portfolio and managing our portfolio through the sale of older and underperforming aircraft at premiums to book value. We've also outlined our initiatives in reducing our debt costs and reducing SG&A as a percentage of revenues. FLY's adjusted ROE was an attractive 14% in the quarter, and we are focusing on continuing to achieve double-digit adjusted ROEs in future accounting periods. We expect that our current portfolio metrics and our $750 million investment prospects for the rest of the year will be instrumental in achieving that objective. And now we're ready to take your questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Helane Becker with Cowen and Company.

[Helane R. Becker:]

I just have a couple of questions and clarification points. So on the 757s, am I to understand that you're selling this below book value? Is that why you have to write the valuation up?

[Colm Barrington:]

Helena, it's a complicated calculation. We are selling the aircraft at -- for a sales price that is below our net book value, but we -- and therefore, we are reducing the net book value for the additional depreciation until the sale date. However, that's only one part of the transaction. The transaction actually comes out as a profitable transaction in that we have significant end-of-lease income for those aircraft, and we are releasing the current operators from their redelivery conditions -- from certain of their redelivery conditions in exchange for cash. So the aircraft are going into a full reconfiguration program to be turned into freighters [ph]. So the combination of all of those is making the transactions profitable, but the actual book accounting shows we have to reduce the book value to the sales price over the coming months.

[Helane R. Becker:]

Okay. So is the end-of-lease revenue, the $21.9 million that you reported for the first quarter, that includes what you just told me about return conditions and everything like that?

[Colm Barrington:]

No, there's none of the 757s in that figure, Helane.

[Unknown Executive:]

[indiscernible] aircrafts.

[Colm Barrington:]

Some of which were returned in the first quarter, we had originally expected 1 or 2 of them to come back in the December quarter and they came into this quarter just by the fact that the redelivery -- the redeliveries were somewhat delayed.

[Helane R. Becker:]

Oh, okay. Are you seeing that? Are you seeing that clients are keeping aircraft longer?

[Colm Barrington:]

No, it's just what -- there were 3 aircraft that were involved in certain technical redelivery conditions that haven't been met. And therefore, the redeliveries were somewhat delayed. It happens on a pretty regular basis in our business.

[Helane R. Becker:]

Okay. Okay. And then the other thing -- this is probably a question for Gary. I need to understand this. When I look at your press release from last year, the 2014 versus 2013, and I compare the non-GAAP financial results to this year's 2014, the numbers are not the same. Last year, it was $0.12 in non-GAAP adjusted net income of $5.13 million, and this year it's $9.76 million for $0.24. So how do I reconcile those differences?

[Gary Dales:]

Helane, yes, we have a new calculation of our adjusted net income. And while incorporates all the items that were in the 2014 measurement of adjusted net income, this quarter we'd be adding -- including a few other items more similar to our peers. These include the amortization of debt issue costs, deferred income taxes and a couple of other noncash charges that are in our results. So that's why the last year number for the press release will not agree to this year's number. And so it's probably best to look at this quarter's press release for comparative results.

[Helane R. Becker:]

Right, okay. I just wanted to make sure I understood how you went from the $0.12 to the $0.24. But that's fine. So the -- so you've just included more items that you had not added in before. Is that how I should...

[Gary Dales:]

That's correct. That's correct. It's I would say maybe a little broader definition this quarter than last.

[Helane R. Becker:]

Okay, all right. And this is how it's going to be going forward now?

[Gary Dales:]

Yes, it is.

[Operator:]

Our next question comes from the line of Gary Liebowitz with Wells Fargo.

[Gary S. Liebowitz:]

Steve, you mentioned the strong market for sales of older aircraft. I just wondered if it'll possible if you can bracket for us how many planes that you might consider selling this year. If we think of the 120 planes you own, other -- excluding these 57s that are already committed for sale, just for modeling purposes, how wide -- how big can the asset sale program be this year?

[Steven Zissis:]

Now look, I think we prefer, Gary, not to get into the specifics there other than to say our goal is to eventually exit the older part of our fleet and to take that capital and redeploy it into the -- into younger aircraft. And as you've seen over the last 3 years, we've been slowly doing that. So if opportunities present themselves this year, you can see us selling a handful of aircraft or perhaps even more. As you probably heard from a lot of people in the marketplace, the liquidity is pretty good for used aircraft. And to the extent we can take advantage of that, we will.

[Gary S. Liebowitz:]

Okay. And Colm, you had mentioned that you expect your SG&A percentage of revenue to continue to go down. Is that simply a function of net fleet growth while keeping expenses flat? Or is there something structural that's changing about SG&A?

[Colm Barrington:]

Well, I mean, yes, as we grow the portfolio, obviously about 40% we reckon of our SG&A is fixed. It's made up of our cost of being a public company which don't go up as you get bigger, and it relates to the fixed element of our management fee to BBAM. So as you increase the portfolio, obviously that percentage of -- that part of your SG&A stays flat and the percentage -- the overall percentage goes down.

[Gary S. Liebowitz:]

Okay. And last one, just back on the end-of-lease revenue in the quarter, it was somewhat higher than I had expected. I know you said you had some expirations that got pushed from the December to the March quarter, but you would have known about that back in March when you gave the guidance. Were there any unscheduled terminations that hit in the first quarter?

[Colm Barrington:]

Yes, I think when there were 2 aircraft that we expected to come back in the second quarter, I believe, Gary -- correct me if I'm wrong -- that actually came back in the first quarter. So that actually increased our first quarter above what we expected ourselves.

[Operator:]

Our next question comes from the line of Richa Talwar with Deutsche Bank.

[Richa Talwar:]

So just a couple of housekeeping questions first. What was your utilization rate for the quarter?

[Colm Barrington:]

Can you repeat that question, please?

[Richa Talwar:]

The utilization rate on the fleet.

[Colm Barrington:]

Well, it stands, Richa, at about 97.5%.

[Richa Talwar:]

Okay. And then I guess just on that, the last time we spoke, I believe, Steve, you said SpiceJet was not performing on the one airplane you have left with them. Can you give us an update on that and how the rest of your watch list is trending? Are there any customers that are delinquent today?

[Steven Zissis:]

SpiceJet has successfully reorganized themselves. We've agreed to reinstate the lease. And shortly, that aircraft will be back in revenue service. As you know, we only have one aircraft at SpiceJet. So we're pretty optimistic that they've turned the corner and stabilized the situation.

[Richa Talwar:]

Okay, great. And then I noticed that your weighted average age ticked up slightly and your remaining lease term was modestly lower than at the end of 2014. Can you tell us what drove that?

[Colm Barrington:]

Yes, I think, Richa, there were -- so basically we sold 3 aircraft in the quarter, which were younger aircraft than we normally would consider selling. However, we sold them for very good reasons. We were concerned about a lessee -- a potential restructuring of one of our lessees. So we decided we should try and reduce our exposure to that lessee, and that's what we did. So that's why the aircraft was sold at a younger age than we would normally do, and that drove our average fleet age up a bit, and it brought our average lease term down a bit, as you mentioned.

[Richa Talwar:]

Okay. And then if I could just ask one more. This is an extension to Gary's question. Colm, you talked about lowering SG&A down the line. And also, I think it was mentioned that financing costs could be reduced further. Can you elaborate on that? I mean, is a low-hanging fruit with respect to cost savings from the lower SG&A and interest costs? Or have they already been taken care of? Or can we expect more there?

[Colm Barrington:]

Well, I think, Richa, we said with 76% of our -- just over 76% of our debt is secured debts. Much of -- some of that was our original securitization, which we completed in 2007, and we hedged our interest rate exposure at that time when interest rates were much higher than they are today. We have over $100 million of that securitization debt -- of those swaps rolling over in the next few months. And when we rehedge those, they will be much at lower rates from the original debt. And as we mentioned, we have just -- we restructured our $446 million term loan, reduced our interest costs on that loan by about 1% -- by 1%. And that's the result of interest saving of about $4 million per annum.

[Operator:]

Our next question comes from the line of Nathan Hong with Morgan Stanley.

[Nathan Hong:]

We've been hearing from investors broadly that there are attractive opportunities to acquire aircraft in the secondary market. But at the same time, most lessors also find their aircraft trading remains pretty robust, and we're actually seeing more aircraft sales these days. But I'm just wondering if you'll offer some thoughts on the environment we're in today. Is it more of a buyer's market? Or is it more of a seller's market?

[Steven Zissis:]

Well, I think the best way to think about that, Nathan, is that liquidity is a double-edged sword, right? So as liquidity increases and aircraft become more popular as an investment vehicle, the values of all the lessors' portfolios go up, right, because people are bidding up the assets, and an investment that traditionally has been an illiquid investment is much more tradable. But on the flip side, when you go to execute a sale-leaseback or buy in the secondary market, prices have been affected. And so the challenge for most of the lessors is to navigate the market to find what I would term as relative value, right? You're looking for something that is not perhaps priced as competitively as the general market would perceive it to be. So that's the challenge for all of us. And so many the guys that have been around 20 years doing this business are pretty good at it, and the new players are less successful at it.

[Nathan Hong:]

That's helpful. And just another question. And as we're kind getting closer to a period to where we're seeing more of a -- we'll, I guess we will be seeing more of the new generation of FS [ph], NEOs and MAXs begin to deliver. I'm just wondering if you can offer some thoughts on how you think about residual value risk on your current portfolio. Like how long do you believe or, I guess, at what levels do you believe NEOs or MAXs will begin to have a meaningful impact here?

[Colm Barrington:]

Sorry. Nathan, I think we lost you at the end. Could you repeat your question, please? We lost you.

[Nathan Hong:]

Yes, sorry. Yes, so we're seeing more or we will be seeing more of the NEOs and MAXs begin to deliver in upcoming years. I'm curious to hear your thoughts on how long do you believe or at what level do you believe NEOs or MAXs will begin to have a meaningful impact on the value of your fleet?

[Colm Barrington:]

Yes, we think the Bedford [ph] of the world they can't deliver enough NEOs and MAXs to make a huge impact on the world airline fleet until well into -- beyond 2020. Obviously, as more of those aircraft come on the market, you will see pressure on some of the older aircraft, as the Boeing 73 Next Generation have on the 737 Classic. And if you look at our portfolio, we've moved out of the Classics virtually entirely. I think we have only one Classic left only. And as more NEOs and MAXs come on the market, we'll move out of the A320 series and the 737 Next Generation, and we'll move into the NEOs and the MAXs. So it's just a question of managing the portfolio on an ongoing basis, and we will certainly focus on that, and we will do it. And we'll -- and then we obviously will -- we will try and move on from some of those aircraft before the -- before there's any major deterioration of their values.

[Operator:]

Our next question comes from the line of Jason Arnold with RBC Capital Markets.

[Jason Arnold:]

Just a couple of quick follow-ups on the liability, I guess, side of balance sheet here. It's obviously great to see the term loan repriced. But I was just curious if there was any components of the debt capital structure that you see some improvement opportunities on here near term. And then on the swap item you mentioned earlier, I was just wondering if you could gauge the order of magnitude of impact on average borrowing costs, if you were to put -- kind of what you're expecting to put on from a swap perspective going forward.

[Colm Barrington:]

I think maybe we didn't mention actually in our presentation was we actually terminated our aircraft acquisition facility, and that was quite a high-cost facility. And so getting rid of that will reduce our commitment fees under that facility and will reduce our cost of debt for the amount of that facility we've draw down. In terms of the swaps, I could see somewhere between 1% and 2% saving in interest costs as we redo those swaps over the coming months. And we're probably talking $100 million to $150 million in total.

[Jason Arnold:]

Okay, super. And I guess the other one I was just curious on is your comfort zone on leverage. Maybe you can update us on where you feel comfortable with and where we might see a leverage trend here near term.

[Colm Barrington:]

Yes, I mean, we feel comfortable in leverage in the range of 3.5 to 4.5. We're slightly below 4 as we speak. And we -- depending on the aircraft we sell over the coming months, we see that on average hovered around that area for the rest of the year.

[Operator:]

Our next question comes from the line of Andrew Light with Citigroup.

[Andrew Light:]

I've got a question on dividend policy. Usually, this time of the year you increase a little bit. But this year, you kept it flat. I'm just wondering what the board's thinking was around that. And then you're talking about the stock buyback program being reinstated. Is that a way of rewarding shareholders in the future rather than increasing the dividend?

[Colm Barrington:]

Look, we review our dividend, Andrew, on a quarterly basis. We decided we didn't need to increase it right now. We're giving quite a high dividend yield, and we thought that was probably about right. So -- but obviously, as we grow the portfolio and as we grow the earnings, we'll certainly reconsider the dividend. We have the $30 million buyback program in place. To date, we have reckoned it was better shareholders to continue to expand the portfolio, to rejuvenate the portfolio rather than buy back shares. But we look at that on an ongoing basis also. So we're not giving any guidance on share buybacks or dividends at this point in time. Just to show you that it is very much in our minds, we look at it on a quarterly basis.

[Andrew Light:]

Okay, thanks. Just a follow-up question. On the slide on the guidance, I mean if I add up those numbers line by line -- and I know you don't guide to SG&A, but if you put in an SG&A figure of around $8 million to $10 million, I get pretty close to breakeven. So I was just wondering if there's a particular reason why the conservatism in that.

[Gary Dales:]

Well, the -- Andrew, I think you're right when you add up the numbers, that they -- second quarter is going to be less than our first quarter. Some of the reasons are that end-of-lease income is down somewhat. We do expect rental revenues to increase. As Colm mentioned, we have -- reducing our SG&A costs as well as our interest cost. Those reductions will not be fully in place in the second quarter and will build through the year. But I think maybe you're correct in your -- some of the numbers.

[Operator:]

[Operator Instructions] Our next question comes from the line of Kristine Liwag with Bank of America.

[Kristine T. Liwag:]

A couple of quick questions. For the leases that expired in the first quarter, can you talk about what the new lease rates are for the re-lease and how they compared to the contract that just expired?

[Steven Zissis:]

Well, for 2015, Kristine, we had 35 remarketings, and 3 of those aircraft are still yet to be placed. So as you could see, the demand for aircraft pretty strong in 2015. And then if you look forward into 2016, we have 20 aircraft that are on scheduled redeliveries, and about half of those are already placed.

[Kristine T. Liwag:]

But can you just talk about, I guess, maybe quantity of or the price of those leases and how they compare?

[Steven Zissis:]

Look, because we have quite a bit of a mixed fleet of both young and new, it's very hard to give you a general answer on that. But if you think about the newer aircraft sold, 0 to 5 years old, lease rates have been pretty steady. They haven't been declining at all over the last year. When you go to the older aircraft, obviously we're seeing lease rates stabilize in that area, but they have gone down quite a bit if you look back 5 years, right? So some of the aircraft are down 20% to 25% depending on when we originated the original deal. But again, it's very hard to ballpark unless you're talking about specific aircraft. But -- I'm trying to be a little careful here about how to answer that because you'll come around -- come away with the wrong impression on what our lease rates are. But I think in general, Kristine, lease rates have firmed and have been pretty steady for the last couple of years.

[Kristine T. Liwag:]

Great. And on SG&A, I guess I've always thought that SG&A is a function of rental revenue because of the management fee to BBAM. So if it's not -- so if lease rates -- sorry -- if your lease revenues actually increase, then shouldn't SG&A increase in tandem? And if not, can you talk about what leverage you could pull so that your SG&A would -- you'd get some leverage there?

[Colm Barrington:]

I think we mentioned, Kristine, earlier, about 40% of our SG&A is fixed. The 2 big elements in that are things like our registration costs with the FCC, our auto [ph] fees, et cetera. That's one of the elements fixed -- that is fixed. And the other element that's fixed is part of our management fee payable to BBAM. So there's a fixed element of our management fee. You're right, the cost -- the other part of management fee is based as a -- on the percentage of revenues. And that will obviously fluctuate as revenues go up and down. But the 40% of this is fixed, won't go up as your revenues go up. Therefore, as you increase your revenues, the percentage does go down. And that's what we hope -- we expect to see during the coming year.

[Kristine T. Liwag:]

Sure. So I guess as a percentage of total sales, SG&A shouldn't go up as much. But then on an absolute level, it should still creep up in tandem with your -- or it should go...

[Colm Barrington:]

On an absolute level, yes, it would -- if -- at an absolutely level, certainly as you increase revenues, your SG&A goes up. But on a percentage level, it should go down.

[Kristine T. Liwag:]

Great. And then a last follow-up. How should we think about end-of-lease income in the second half of the year? Or is it still too early to tell?

[Gary Dales:]

Well, I think end-of-lease revenue on an annual basis has been relatively steady for the last few years, somewhere in the ballpark of $40 million annually. I guess our expectations are probably it will be somewhere around the same amount for 2015. As we said, it's difficult to determine exactly which aircraft is going to be returned as opposed to extended, so it's not easy to be really measure that. We're looking at about $3 million for the second quarter. We had $21 million in the first quarter. So I hope that helps you with an idea of where we're going to be and maybe a way to think about it.

[Operator:]

Our next question comes from the line of Bill Mastoris with Baird & Company.

[Bill Mastoris:]

And this is a follow-up to some of the earlier questions. I'm just wondering, with the combination of your cash flow, internally generated cash flow, cash on hand, are you going to be able to fund your entire $750 million of aircraft investments internally without having to do any type of new bond issue? That would be the first question. Second question would be, your unencumbered aircraft goal in the past, you stated it's somewhere between $750 million up to $1 billion. Is that still the goal here? Or with the growth in the fleet, might that goal now be a little bit higher?

[Colm Barrington:]

That's our unencumbered aircraft?

[Bill Mastoris:]

Yes.

[Colm Barrington:]

Yes. Well, first of all, your first question, with the funding we have, with the cash we have, with the very, very attractive particularly secured debt markets right now, we can fund our 2015 targeted acquisitions from resources that would be available to us. With regards our unencumbered portfolio, it's currently about $632 million values of aircraft. We -- that can go up or down a bit. We don't expect to see it going up hugely, I don't think, during the course of the year, but -- and it could come down a bit. But it'll stay in the current range, give or take.

[Bill Mastoris:]

Okay. So the -- just to reconfirm, we should not expect an additional bond issue for the balance of the year? Would that be fair?

[Colm Barrington:]

I think that's a pretty fair assumption, yes. I mean, the secured debt markets, particularly the bank markets, are so attractive at the moment I -- we don't see any need to go back to the unsecured market right now.

[Bill Mastoris:]

Okay. And my very last question. You mentioned a little bit earlier that your leverage target -- your net debt leverage target was in the 3.5, and you mentioned to 4.5% range. I guess my recollection is that it used to be 3.5% to 4%. So maybe a little bit of clarity there would be appreciated.

[Colm Barrington:]

Yes. As I said, I think we will stay in the 3.5% to 4% range right now. If we have to spike up to 4.5% from time to time, we might do it. But as of now, we're happy with where we are, in the 3.5% to 4% range -- kind of range, excuse me.

[Operator:]

With that, I'm showing no further questions in the phone queue at this time. I'd like to hand the call back over to Colm for any additional remarks.

[Matt Dallas:]

Thank you, everyone, for joining our First Quarter 2015 Earnings Call. We look forward to updating you again in the near future. You can now disconnect.