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Aircastle Ltd (AYR) Q4 2018 Earnings Conference Call Transcript

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Aircastle Ltd  (NYSE: AYR)
Q4 2018 Earnings Conference Call
Feb. 12, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to Aircastle Q4 2018 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Frank Constantinople, SVP, Investor Relations.

Frank Constantinople -- Senior Vice President, Investor Relations

Thank you, Ashbey. Good morning everyone and welcome to Aircastle Limited's fourth quarter and full-year 2018 earnings call. With me today are Mike Inglese, Chief Executive Officer; Aaron Dahlke, Chief Financial Officer; and Mike Kriedberg, Chief Commercial Officer. We'll begin the presentation shortly, but I'd like to remind everyone that this call is being recorded and the replay will be available through our website at www.aircastle.com, along with the earnings press release and our PowerPoint presentation. I would like to point out the statements today, which are not historical facts may be deemed forward-looking statements.

Actual results may differ materially from the estimates or expectations expressed in those statements and certain facts that could cause actual results to differ materially from Aircastle Limited's expectations are detailed in our SEC filings, which can also be found on our website. I'll direct you to Aircastle Limited's earnings release for the full forward-looking statement legend, and we'll now turn the call over to Mike Inglese.

Michael J. Inglese -- Chief Executive Officer

Thanks, Frank. Good morning, everyone. Today, I'm going to discuss our results for the year, our view on current market conditions and our strategy for the coming years. I'll then turn the call over to Aaron Dahlke to cover our financial results for the fourth quarter and the year, after which we'll open it up to Q&A.

Let me start by summarizing Aircastle's investment thesis. Our industry had solid fundamentals, growth in air traffic remains very strong and while growth slowed a bit in 2018, it continued to significantly outpace global GDP growth. Globally, aircraft leasing demand also remains very strong, particularly for the modern narrow-body aircraft that make up the majority of our fleet.

Aircastle's balanced approach toward capital allocation is focused on long-term value creation for shareholders and includes the solid dividend, opportunistic share repurchases and profitable cash flow and fleet growth. We are disciplined investors and able to find attractive opportunities throughout the cycle with a conservative balance sheet and ample liquidity to enable us to act opportunistically as market conditions change. Being an adept asset manager is a critical element to executing on our investment thesis. We have a team of seasoned industry veterans that can effectively move assets around the globe, and we believe this differentiates us from any other platforms.

2018 was a very strong year. We closed with a very active fourth quarter and we achieved significant milestones during the year. We were awarded investment grade credit ratings by S&P, Fitch and Moody's. We returned over $1.1 billion of capital to shareholders since our formation, crossing over the $1 billion milestone in the fourth quarter. This is more than half the current shareholders' equity, which is a little over $2 billion for the first time at year-end.

In our history, we have acquired 470 aircraft for over $15 billion and sold 220 aircraft for approximately $5 billion, generating gains of over $320 million. And in the fourth quarter, we invested in our first new technology aircraft, the closing of 10 A320neos. During the year, we earned $248 million or $3.17 per diluted share with adjusted net income of $257 million or $3.29 per share. We acquired 39 aircraft for $1.4 billion during the year and extended the leases on 14 aircraft in the fleet and transitioned five others. We also sold 14 aircraft during the year, including two wide bodies for net proceeds of about $340 million, all indications of our strength in skilled asset managers with professional leasing platform.

And as responsible stewards of capital, we returned a total of $158 million to shareholders during the year, including $89 million of dividend and about $70 million in share repurchases. Our GAAP ROE for the year was a solid 12.7% with cash ROE a little above 14%. During the fourth quarter, we acquired 18 aircraft for $760 million and sold three older aircraft for $63 million of net proceeds and a gain of $8 million. The weighted average age of the 18 aircraft acquired during the quarter was 3.5 years, with a weighted average remaining lease term of 5.6 years. Our fleet transformation continued during the year as we continue to invest in mid-aged narrow-body aircraft. Our fleet of owned aircraft reached 248 at the end of the year, and 72% of those aircraft are narrow bodies by net book value, twice the percentage five years ago.

Wide bodies represented 24% of total book value, two-thirds of which are A330s and this compares to the peak of 50% at the end of 2014. As of today, our 2019 placement test (ph) is very manageable and represents a small percentage of the net book value of our fleet.

Now let me spend a few minutes on the situation in Brazil. In our press release last week, we tried to underscore the importance of the Cape Town Convention to Brazil, as well as having a predictable judicial system. Although the bankruptcy judge extended the stay on repossession until mid-April, in contravention of Cape Town in our view, he did require the aircraft to be properly maintained, and that the lessors must be paid for everything falling due after February 1.

We've appealed this stay and believe we're on the right side of the law and the facts. This gives us cautious optimism. We remain confident that we have aircraft on lease with other operators within a reasonably quick period of time after we get them back. Until then, we will be closely monitoring our assets and expect to be receiving ongoing rent and maintenance payments. With respect to our E2 order, we continue to have active campaigns with a variety of potential lessees and we're working very proactively with Embraer to develop the market for these new generation aircraft.

Our first deliveries now are not scheduled until the second half of 2020. We believe we'll be able to put these aircraft into the market in the coming year, as Embraer and in conjunction with their new partnership with Boeing, helps develop the market for this next generation of regional assets.

Now turning to the current business environment. Market fundamentals remained strong, as evidenced by the most recent IATA air traffic results for the full year. Global air traffic rose 6.5%, in line with full-year estimates. Continued high level of air traffic compares favorably with the IMF estimate of global GDP growth of 3.7% for 2018. It represents a multiple of GDP of approximately 1.8 times.

Full-year traffic growth was again above capacity growth as estimated by IATA at 6.1% for the year, resulting in passenger load factors reaching a record of almost 82%. While 2018 traffic was healthy, it was off a bit from the prior two years of above trend line growth. According to IATA, global airline profits exceeded $32 billion for the year. This represented the fourth consecutive year that the industry's profits exceeded $30 billion. IATA is forecasting 2019 profits to rise 10% to about $35.5 billion.

According to IATA, almost 80% of the airlines industries cumulative net income since 2004 has occurred over the past four years. Lower fuel prices have benefited airline profitability, while the cost of fuel can be volatile, prices remained low by historic standards. At the end of '18, fuel was 33% below the October 2018 peak and 62% below the 2008 peak, a year when the airline industry reported a loss of $26 billion. In the latest IMF January forecast, average oil prices are projected to be just below $60 a barrel for 2019 and 2020, well below the peak level seen back a decade ago.

Switching to the leasing market, demand for current generation narrow bodies remained strong and rental rates remained stable. As we've been pointing out over the past two years, the second lease demand for wide bodies remained soft due to their narrow operator-based and relatively higher transition costs as well as the current supplies demand situation in the marketplace.

With respect to aircraft values, prices have been supported by traffic growth, financing availability and low interest rates. Strong traffic growth and low oil prices have supported continued demand for NGs and CEOs with ample financing availability and low interest rates, enhancing the affordability and attractiveness of investing in aircraft.

Although interest rates increased during 2018 like fuel, they remained low on a historic basis. Seven-year treasury at 2.59% at year-end, this was up from 2.33% at the end of 2017, but still well below the 4.4% average between 2000 and 2008. Towards the end of last year, financial conditions heightened, credit spread widened a bit, but central banks have been more accommodative since year-end. US fed has taken a pause on its prior rate hike passed and the ECB recently signaled monetary policy would remain accommodative.

Looking ahead, we remain optimistic about the near-term prospects while being ever mindful of trends and current event. We expect to be able to continue to be selective in our new investments while growing in a disciplined, profitable and conservative manner. In a highly competitive market, we achieved strong results in 2018 by finding situations that play to our competitive strength. Our team is deep and experienced, we have a conservative capital structure with investment grade credit ratings. Aircastle is the largest permanently capitalized investor in the mid-aged aircraft space and we have the flexibility to react quickly to market conditions, because we're not tied down by large investment commitments.

Combination of discipline and financial flexibility that allows us to take advantage of these opportunities is a cornerstone aspect of our strategy and our patient, long-term approach toward building value. Consistent with our philosophy of providing a regular return of capital to our shareholders, Aircastle's Board approved our 51st consecutive quarterly dividend, $0.30 per share payable on March 15. Dividend yield on our shares is currently about 5.7%. Since 2011, we've increased the dividend nine times, tripling it from $0.10 per share per quarter to $0.30 per share.

In closing, we had a very successful 2018 notwithstanding developments in Brazil. We remain first and foremost responsible stewards of capital and we'll continue to allocate capital to create long-term value. We've improved profitability and returns over the past few years while earning an investment grade credit rating. We've substantially improved the quality of the fleet with a conscious shift toward more liquid in-demand narrow-body aircraft. And as an investment grade issuer with conservative leverage and significant liquidity, and our team of seasoned professionals, we believe we continue to source attractive opportunities and proactively manage our portfolio.

Now, I will turn the call over to Aaron, who will review the results for the quarter and the year.

Aaron Dahlke -- Chief Financial Officer

Thanks, Mike. As Mike stated earlier, we had another strong year of operational and financial performance. For the full year, we earned $248 million or $3.17 per diluted share and adjusted net income of $257 million or $3.29 per diluted share. We acquired 39 narrow-body aircraft in 2018 for $1.4 billion and sold $339 million of assets at a healthy profit. This resulted in net fleet growth of 10%. We further increased our sustainable earnings base in 2018 and continued to reduce our remaining exposure to what we feel are higher-risk assets.

Let me review the financial results. For the fourth quarter, lease rental and finance lease revenues were $193 million, up 7% or $13 million year-over-year, due to the impact of the 10% net fleet growth. We owned 248 aircraft at the end of 2018, up from 224 aircraft a year earlier. We recorded a gain on sale of flight equipment of $8 million in the fourth quarter and $37 million year-to-date. Total net proceeds from our aircraft sales in 2018 were $339 million. This translates into a rough sales margin of 11% for the full year, which is well above our historical margin of approximately 7%. Total revenues for the quarter are $239 million, an increase of $96 million or 49% from previous year. This was primarily driven by higher maintenance revenue of $93 million and higher lease rental and finance lease revenues of $13 million. The increase in maintenance revenue was largely due to early termination of 11 aircraft leases with Avianca Brazil.

For the full year, total revenues increased $39 million or 5% due to higher maintenance revenue of $50 million and higher lease rental and finance lease revenue of $11 million. Depreciation was $2 million higher for the quarter and $12 million higher for the year. The increase in depreciation was primarily driven by net fleet growth. Over the past two years, we've acquired 107 aircraft and have sold 51 for a net increase of 56 aircraft and grew net book value from $6.7 billion to $7.4 billion. For the fourth quarter, interest expense was $7 million higher than the previous year due to a larger average debt balance. We issued $650 million of unsecured notes in September and repaid $400 million of maturing notes in December. Interest expense for the quarter was $63 million and $235 million for the full year.

Full year interest expense declined by $7 million due to loan termination fees that were included in 2017 interest expense. We reported a net loss of $8 million on our unconsolidated equity investment associated with our joint ventures as compared to $7 million earnings in the prior year. In 2018, Lancaster controlling partner decided to exit its investment in the JV and is pursuing the disposition of the JV assets as a portfolio. For accounting purposes, we recognized a $9 million loss on our share of the undistributed losses related to the disposition of the portfolio. It is important to highlight that despite the fourth quarter accounting impact, we expect to earn nearly 15% IRR on our investments in this JV since inception.

For the quarter, net income was $104 million, adjusted net income was $110 million, up $49 million and $53 million respectively year-over-year. The change from both mainly reflects higher total revenues of $96 million, partially offset by $10 million increase in depreciation, $7 million higher interest expense and $16 million decrease in earnings from our Lancaster JV investment and $5 million of higher taxes. For the full year, net income was $248 million (ph) and adjusted net income was $257 million. Net income in 2018 was $100 million higher than in 2017, while adjusted net income was $88 million higher. We had no impairments in 2018 versus $80 million of impairments in the second quarter of 2017.

Adjusted EBITDA for the fourth quarter of 2018 was $277 million versus $185 million last year due to higher maintenance revenues of $93 million. For the full year, adjusted EBITDA rose 5% to $840 million from $802 million. Maintenance revenues were $50 million higher and lease rental and finance lease revenues were $11 million higher. These increases were partially offset by $18 million (ph) of lower gains from the sale of flight equipment. At the end of the fourth quarter, we owned 248 aircraft with a net book value of $7.4 billion, including 217 unencumbered aircraft with a net book value of $6.1 billion. We managed 13 aircraft with a net book value of $602 million through our joint ventures.

For the fourth quarter of 2018, our portfolio lease rental yield was 11.2% and our net cash interest margin was 7.8% versus 8.6%. GAAP ROE for 2018 was 12.7% and Cash ROE was 14.2%. The lower net cash interest margin was primarily due to lower lease revenue, mostly driven by the termination of 11 leased aircraft with Avianca Brazil. Given the expected transition time on the aircraft coming out of Avianca, we expect the first half of 2019 net cash interest margin will be down a bit, while we anticipate it to recover in the second half of the year to around 8% by year-end. Our liquidity position remains very strong. At year-end, we had $153 million of unrestricted cash and more than $625 million of unused revolver capacity. Total borrowings were $4.8 billion, including $4 billion of unsecured debt or 83% of total debt. The weighted average coupon on our debt at year-end was 4.99%. Our weighted average debt maturity was 3.3 years, our net debt to equity ratio was 2.3 times. Cash flow from operations was $523 million, year-over-year 6% increase. With significant liquidity, low financial leverage, investment grade credit ratings, and minimal forward commitments, we are well positioned to take advantage of any potential market dislocation which could lead to attractive buying opportunities.

Our capital allocation approach remains balanced. During the year, we acquired $1.4 billion of aircraft and returned $158 million to our shareholders in the form of dividends and share repurchases. We remain committed to allocating capital efficiently between accretive investments and return of capital to shareholders . On February 8, the Board approved a $0.30 per share common dividend payable on March 15. We've now paid out $1.1 billion to our shareholders including $857 million in dividend since going public in 2006 and $89 million in 2018 alone. We've increased the common dividend nine times since 2011, tripling the payout from $0.10 to $0.30 per share per quarter.

Since 2011, we've also repurchased approximately $270 million of our shares at an average cost of $14.57 per share. And we currently have a share repurchase program authorization, which we can use opportunistically, with the remaining balance totaling $76 million. You can find guidance elements for the first quarter of 2019 in our earnings press release and earnings presentation, both of which were posted to the website this morning. I'd like to provide some background and context on that guidance. Thus far in 2019, we have closed or have commitments to close 10 narrow-body aircraft for $378 million.

For the first quarter, we are guiding to a combined lease rental and finance lease revenue between $187 million and $194 million, compared to $187 million in the first quarter of 2018. This reflects the net impact of our acquisition volume and sales activities over the past year, along with the transition of aircraft that are presently not generating revenue including 11 Avianca aircraft. Our maintenance revenue for the first quarter is expected to be roughly flat year-to-year based on scheduled transitions in Q1 of 2019, down materially on a sequential basis. As explained, the fourth quarter of 2018 includes sizable maintenance revenue associated with the termination of leases with Avianca Brazil.

In conclusion, 2018 was exceptionally strong year of financial performance and results. We further strengthened our franchise by acquiring 39 narrow-body, including 10 A320neos and profitably selling 14 aircraft to produce solid gains and reduced residual value risk.

We achieved a strong ROE and returned significant capital to shareholders. We have a strong liquidity position, our future capital commitments remain modest and our capital structure is flexible and conservative. And with investment grade credit ratings, we have robust and steady access to financing.

And with that, operator, we're happy to open up the call for Q&A.

Questions and Answers:

Operator

Thank you. (Operator Instructions) We'll take our first question from Helane Becker with Cowen and Company.

Helane Becker -- Cowen and Company -- Analyst

Thanks, operator. Hi, everybody. Thank you very much for the time. Just a couple of clarification questions. On the differences between the lease rental and finance lease, do we have to think about any accounting changes associated with that?

Michael J. Inglese -- Chief Executive Officer

You are taking as a result of the new leasing standard?

Helane Becker -- Cowen and Company -- Analyst

Exactly.

Michael J. Inglese -- Chief Executive Officer

No, we don't expect that to have any material impact on our business report.

Helane Becker -- Cowen and Company -- Analyst

Okay. And then my other question is with respect to joint ventures that I guess you were talking about Lancaster leaving the partnership. Are they giving -- you said that they were I think selling assets associated with that. Are you considering acquiring those assets or is that not something that you would want to do? Can you just maybe discuss that a little more detail?

Michael J. Inglese -- Chief Executive Officer

Sure, Helane. It is something we considered, but in the context of the stewardship and the management of those assets, the third-party market we believe will offer them more value than we probably would have. And so it's likely that, that sale will occur to a third party.

Helane Becker -- Cowen and Company -- Analyst

Okay. And then my last question, just in terms of what you're seeing, I think you said, Mike, that you're seeing really strong demand. Just kind of wondering if there is a geographic bend to that, is there one region that might be stronger than a different region that you could maybe talk a little bit about?

Michael Kriedberg -- Chief Commercial Officer

It's Mike Kriedberg. No, I wouldn't say it's across the board. You're seeing in Europe, you're seeing in Asia. It's pretty much across the board on purchase leasebacks, we're finding a number of those and still a lot of lessors selling. So we haven't found any shortage of our funding decent opportunity. So I think pretty across the board. Yeah, I won't take the specific region.

Helane Becker -- Cowen and Company -- Analyst

Okay. All right, those were my questions. I'll let someone else. Thank you.

Michael J. Inglese -- Chief Executive Officer

Thanks Helane.

Operator

And we'll take our next question from Susan Donofrio with Macquarie Capital.

Susan Donofrio -- Macquarie Capital -- Analyst

Yes, hello everyone. Just a couple of questions. One is, can you talk a little bit about emerging markets and the rising interest rates, and if there is anything to flag, obviously India I guess coming to mind in general, is there something that we should be watching for? And then I just have some follow-ups on Avianca.

Michael J. Inglese -- Chief Executive Officer

Yes. First, I would say it's not clear that we're in a rising interest rate environment anymore.

Susan Donofrio -- Macquarie Capital -- Analyst

Okay.

Michael J. Inglese -- Chief Executive Officer

So we're obviously keeping an eye on that. We did see effects in the middle of last year from both the strengthening dollar, rising rates and oil. Some of that has sort of the amplitude modulation of that has come down a bit from what we're seeing in the middle of last year in respect to those three phenomenon. And I would say with respect to India, it is clearly a very competitive market and a very strong growth market for the airline industry.

We have enhanced our relationship and our investment with IndiGo during the second half of last year with our first investments in A320neos through sale leasebacks with them, which is in addition to a handful of other A320ceos, we had on lease with them. We also have exposure there to SpiceJet, to GoAir and to Jet Airways as well. So we think it's going to be a strong growth market. It won't be a perfectly smooth path to accommodate all of that growth, but we continue to monitor the situations. With respect to Jet Airways, it appears that they have in the works a recapitalization plan, which will allow them to move forward. It's not done yet and so no one's ready to declare victory, but it appears on the right path and we expect that we might see some news related to that and more definitive details over the course of the coming month.

Susan Donofrio -- Macquarie Capital -- Analyst

Great. And then just on Avianca. So the next step would be a higher court would listen -- is that -- I'm just trying to think, I guess, about the timing of when you can get your aircraft back in order to replace them?

Michael J. Inglese -- Chief Executive Officer

So, under the bankruptcy judges stay, he has given them a stay until mid-April when the creditors' meeting is being scheduled. We have appealed that decision with the appeals court. That process will probably take some time and I don't think we would expect to have any clarity or answer from that process until probably the first half or mid-March at this point of time.

Susan Donofrio -- Macquarie Capital -- Analyst

Okay, great. Thank you.

Operator

And we'll take our next question from Jamie Baker with JPMorgan.

Jamie Baker -- JPMorgan -- Analyst

Hey, good morning gentlemen. So, Mark and I are trying to understand why you had so many aircraft with Avianca Brazil in the first place. Should we assume there was something maybe about the reserves, you know, the leases maybe were nicely above market or was it the case that your underwriting simply failed? I know you're not alone in this regard, but you know others that have exposure there and I'm thinking about GE and ACG, it seems that they're avoiding this situation that you're currently in. So, any color on how this whole morass came to be?

Michael J. Inglese -- Chief Executive Officer

So yeah, let me sort of dismiss the whole premise of your question, we don't have an underwriting.

Jamie Baker -- JPMorgan -- Analyst

Okay.

Michael J. Inglese -- Chief Executive Officer

We had appropriately priced lease rates, we had appropriately scaled maintenance reserves and the idea that GE Capital and ACG are somehow in better shape than we is basically preposterous. So these are relatively young A320s, I expect to get them back and I expect them to have them on lease quickly on new long-term leases with a very strong credit.

Jamie Baker -- JPMorgan -- Analyst

Is there a risk that you may need to write them down and if so when, and also just given what seems to be a pretty blatant disregard for Cape Town, is this like a one-off situation or are you possibly rethinking about how you place aircraft with weaker operators in jurisdictions where Cape Town might have previously held up?

Michael J. Inglese -- Chief Executive Officer

So certainly everyone, the world is watching what happens in Brazil and how Cape Town plays out. So certainly we are watching that with keen interest and depending upon how this goes, it will certainly influence how we think about the convention and how we think about pricing that risk into future business.

Jamie Baker -- JPMorgan -- Analyst

Okay, thank you very much. Appreciate it, Mike.

Michael J. Inglese -- Chief Executive Officer

Thanks Jamie.

Operator

And we'll take our next question from Vincent Caintic with Stephens.

Vincent Caintic -- Stephens Inc. -- Analyst

Hey, thanks. Good morning guys. Just a couple of kind of detailed follow-up questions. So first on the $14 million loss in the earnings of equity-method investment. So I understand first off, $9 million from Lancaster, I am wondering what's driving the other $5 million to get to $14 million? And then in terms of the $9 million, is that just a mark-to-market of the assets in the JV portfolio? So is there potential upside to that as you work through that portfolio? And then any reason that there would be a loss on that venture versus the gains that you're seeing on the existing portfolio and if there's any implications on your other joint ventures? Thank you.

Aaron Dahlke -- Chief Financial Officer

Hi, this is Aaron. So on the joint venture, when you think about the change, the gross change is $14 million. So that's the loss. And it's the portfolio values -- there will be gains on that in 2019, just the way the math has to work for accounting purposes.

Vincent Caintic -- Stephens Inc. -- Analyst

Okay. And so --

Michael J. Inglese -- Chief Executive Officer

If you think about it holistically, our controlling shareholder in that joint venture used on Aircastle stock and established this joint venture with us, when they look at the totality of their investment in this space, they have made a very nice return on both sides of that equation. And this is a decision by them to exit these assets in the context of reallocating their own capital into different sectors, and the people who established this aircraft leasing venture with us have since retired there. So with the change of personnel and a change of sort of vertical mandates, this is the logical progression for them, and we don't think it necessarily has any implications in the context of how we're seeing values or what we expect to see in our own portfolio over time.

Aaron Dahlke -- Chief Financial Officer

And just to remind you, (inaudible) I would like to say, return on -- it is going to be in excess of 15% for us. And since inception and you're going to see gains coming in 2019 on this.

Vincent Caintic -- Stephens Inc. -- Analyst

Got it. That's really helpful, thank you for that. Next on the situation with Avianca Brazil. So one thing I want to clarify, the guidance for first quarter of 2019, does that assume -- are you actually receiving monthly lease payments from them since the court ordered that for February 1? And then just kind of thinking long term from your prior experience in these types of events, how does it typically play out and then once you repossess the aircraft, how long does it take to turn it around?

Aaron Dahlke -- Chief Financial Officer

So in the context of the bankruptcy judge's new order, we have in fact received payments since the stipulated resumption date of February 1 on our leases, both rent and maintenance reserves. In the context of how this plays out, it remains to be seen where we will be in a month with the appeals process or where and if there will be in fact a recovery plan that the creditors and others find acceptable when you get to the middle of April. So my personal expectation is some time after mid-April, I will be getting my aircraft back and after a relatively short period of time, I'm guessing a few months, we should be able to get them back out on lease, what I expect to be relatively long-term leases with a stronger credit.

Vincent Caintic -- Stephens Inc. -- Analyst

Perfect. Very helpful, thanks very much.

Operator

And we'll take our next question from Mike Linenberg with Deutsche Bank.

Michael Linenberg -- Deutsche Bank -- Analyst

Hi everybody. Hi Mike, not to beat a dead horse here, but back to Avianca. So I want to be clear, so you said you did receive rent and maintenance reserves recently from Avianca Brazil now. Are you -- so have they everything that was in arrears going back, I don't even know how many months, but are they current, number one. Number two, if they continue to make those payments and they perform, can we continue to keep those airplanes? Do they have a say there, can you actually take them out? I'm just curious about that dynamic. Thank you. Then I have a few others.

Michael J. Inglese -- Chief Executive Officer

That's OK. So, no, they are not current. The judge did not order them to get current. He ordered them to pay for the usage of the assets with all the lessors as it began on February 1. So there are still significant arrears across all the lessors in the Avianca Brazil family. And as it relates to the going-forward situation, we don't believe the judge has the authority to cram down leases on us and tell us that we need to keep them there, but it's a developing situation and we will see how it progresses over the course of the next month on our appeal process as well as the next few months in the context of the recuperation plant.

Michael Linenberg -- Deutsche Bank -- Analyst

Okay, and then just as a follow-up, it looks like in the press release, you talk about repossessing the 10 Airbus narrow bodies and that you've apparently, I believe you've already found homes for them. What about the A330? So does that mean the A330, is that still flying with Avianca Brazil, or were you able to actually get that out, repossess and that's gone on to greener pastures?

Michael J. Inglese -- Chief Executive Officer

So, yes and not exactly. So we did in fact repossess the A330 before the original bankruptcy stay was put in place. The aircraft is in our possession and we are in the process of remarketing it. So the greener pasture hasn't quite yet been identified, but we're confident we'll find a home for that. It's basically a 2015 A330 and we will find a home for it. We have not yet.

Michael Linenberg -- Deutsche Bank -- Analyst

Okay and then just kind of the last, and this is maybe a little bit of a follow-up to Jamie's question is that, we know that BOC Aviation, they did get their airplanes out. Now, it was only two. And so you had 11 and I realize every situation is different, sometimes planes don't have your engines trying to track them down. So what worked with BOC? Did they move first and so therefore they had first-mover advantage, or because they had a less complex situation than what you had with Avianca Brazil, they were able to move and get the assets out and on to another carrier?

Michael J. Inglese -- Chief Executive Officer

I would describe it as I don't believe they moved first or sooner. We were moving at the same time, it was just much easier to tie up two airplanes than it was to try to tie up 11 before the bankruptcy judge issued its initial stay.

Michael Linenberg -- Deutsche Bank -- Analyst

Okay, fair enough. Thank you. Thanks.

Operator

And we'll take our next question from Kevin Crissey with Citi.

Kevin William Crissey -- Citigroup Inc, -- Analyst

Hi, thanks for the time. Do you currently have any other clients that may be delinquent or did you have particular eyes on maybe outside of that region?

Michael J. Inglese -- Chief Executive Officer

No. As I alluded to before, Kevin, so everyone who is involved with Jet Airways is certainly keeping an eye on the situation there and how the recapitalization plan comes together. Outside of that, I don't think we have any material concerns with any of our top 15 to 20 customers.

Kevin William Crissey -- Citigroup Inc, -- Analyst

Terrific, thank you. And then do you, as in general, take positions on joint venture agreement applications, American with LATAM or any other? I don't know if you weigh in on the prospects for those JVs.

Michael J. Inglese -- Chief Executive Officer

Not really. I don't think it's my place to comment on commercial tie-ups between those folks and what they may be talking about or thinking about.

Kevin William Crissey -- Citigroup Inc, -- Analyst

Okay. Thank you for your time.

Michael J. Inglese -- Chief Executive Officer

You bet.

Operator

And we'll take our next question from Russell Filipski with Post Advisory.

Russell Filipski -- Post -- Analyst

Good morning. My questions on Avianca were answered with earlier questions. So, I'm not going to delay a bit at this point.

Michael J. Inglese -- Chief Executive Officer

Thanks Russ, I owe you one.

Operator

And we'll take our next question from Kristine Liwag with Bank of America.

Kristine Liwag -- Bank of America Merrill Lynch -- Analyst

Guys, with the aircraft in Brazil, presuming that you've been in discussions with potential lessees, one, if you were able to get the aircraft out, how are the lease rates looking for a fairly new narrow-body? Were you expecting to get a higher lease rental on the aircraft if you were to sign it with a new lessor today and versus what you've had with Avianca Brazil?

Michael J. Inglese -- Chief Executive Officer

In a word, no. We never expect to sign leases for a higher lease rate than on a plane that's been in place for four or five years in an existing operator. That's just how the industry work in general. Occasionally, you get lucky and that happens, that's not the norm. And so we would expect there will be a lower rental rates with the new operator, but sort of mitigating that effect is, we also expect the next lease to be longer than the original end date of the Avianca leases. And so, we think by the sort of heavy check in the year 2012 will be not far off of original underwriting economics from where we would have expected today.

Kristine Liwag -- Bank of America Merrill Lynch -- Analyst

And after your experience with the local courts in Brazil and presuming that you also look at your portfolio after and reevaluated credit risk, is there anything that you would highlight that you've changed how you looked at? Before, were you only looking at Cape Town agreement as a risk mitigator, or were you also looking at other factors? And how has that changed after your experience with Brazil and what are the main changes you think you would implement going forward?

Michael J. Inglese -- Chief Executive Officer

So, let's be clear that there is no after Brazil, we're in the middle of Brazil. So, we are obviously looking at how Cape Town gets dealt with and how ultimately the situation gets resolved. It's not the only mitigant that we rely on in underwriting in any jurisdiction, its precedence and other factors that go into thinking about that. And no one, I would say realistically believe that in the context of repossessing a plane that you were going to get it back the day you terminated your leases.

That's not how the real world works. So we're disappointed with how the process is being implemented and playing out in Brazil. The actual time frame involved in making all of this come together is not exactly a surprise to anyone who has been in this business for a while.

Kristine Liwag -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

And we'll take our final question from Reno Bianchi with Cantor Fitzgerald.

Reno Bianchi -- Cantor Fitzgerald -- Analyst

Yes, thank you very much. Couple of questions, and unfortunately the first one is again on Avianca Brazil. But I think the only information that hasn't been disclosed is how much rent has been accrued on a book-to-date? And related question, when you receive the rent, if you receive the rent, how would you recognize it in the P&L?

Michael J. Inglese -- Chief Executive Officer

So, to be clear, as related to the past due amounts, once someone goes beyond our security package, we do not recognize revenue unless we collect cash. And so in the context of the new judges stay and the prospects for collecting rents, we will only recognize that to the extent cash comes in at the door.

Reno Bianchi -- Cantor Fitzgerald -- Analyst

And you're not willing to disclose the amount of cash that may come in at the door?

Michael J. Inglese -- Chief Executive Officer

No, no. I'm not going to get into the specifics of the lessee.

Reno Bianchi -- Cantor Fitzgerald -- Analyst

But let me ask you this, maybe you can answer this one. Is the fourth quarter of 2018 of lease rental, is not being collected, the full 90 days?

Michael J. Inglese -- Chief Executive Officer

Again, I'm not going to get into the specifics of this particular situation, given that it's ongoing.

Reno Bianchi -- Cantor Fitzgerald -- Analyst

Let's leave Avianca Brazil alone.

Michael J. Inglese -- Chief Executive Officer

Yeah.

Reno Bianchi -- Cantor Fitzgerald -- Analyst

I assume then you had the chance, I hope so to see the outlook that Avolon put out a couple of days ago, which I think in the aggregate depict a situation, maybe slightly more conservative than the one that you outlined at the beginning of this call. So, I mean my concern, or what I would like to hear your opinion, it's been a decent amount of I would define as small bankruptcy. But certainly a little bit of more incremental supply of aircraft that maybe was originally contemplated. Because of all this bankruptcy, do you still believe then the market is easily able to absorb that additional supply that is coming out of bankruptcy?

Michael J. Inglese -- Chief Executive Officer

Look, we think that the market so far has done a reasonable job of absorbing assets that have come out of recent situations, does it mean that the market has an unlimited appetite, airline bankruptcies continue going forward. My suggestion is with respect to Avianca Brazil, given the nature of the assets that are coming out of there, we in the context of our own assets are very confident in finding a new home for those assets. But you've also had other recent bankruptcies like Primera, some smaller carriers, many of the smaller carrier assets in my view are going to find their way to the part out then. And so, I don't think they're necessarily going to be competing for lease placement opportunities in the context of what you see coming out of Avianca Brazil.

Michael Kriedberg -- Chief Commercial Officer

And I would just add to that. Really just add to that comment, this is Mike Kriedberg. We haven't seen a slowdown in demand for, in particular, CFM-powered 320s. There is demand for 738s. So even with the bankruptcies, there's a number of new aircraft where I've seen actually demand slow a little bit as around the magnitude of new technology, MAXs and neos. But as far as actual demand, it is really strong for relatively new CFM-powered 320s, 738s and if anything, some of that demand is even focused on buying. We're seeing lot of the US majors looking to buy 319s, young 320s, young 738s. So we haven't seen a change.

Mike's comment is right. At some point, if you got to add a supplier bankruptcy, it's going to take a toll. We're right now on that young mid-life, not seeing at all. We have no placement issues with whatsoever and the only thing I'll add on Avianca without getting into too much detail is I can tell you there's four or five strong interest from players, we will have no problem placing them and we're waiting to see the outcome before we can actually do something with those aircraft. But I can tell you we have no shortage of interest.

Reno Bianchi -- Cantor Fitzgerald -- Analyst

Thank you very much for further clarification. My final question related to the net cash margin. And obviously in fourth quarter of 2018, on an annualized basis, the first time ever a decline below 8%. But as you explained, there was a lot of noise around that kind of number, mostly Avianca Brazil. But if I go back on time, so remember when you started launching this program on modernizing the fleet, I think at that time, you announced that your expectation on the net cash margin to stabilize around the 8% kind of level.

I just want to make sure that given the current trend in the market anything else, that remain the expectation going forward or is there any possibility that margin may go up and down from that approximate 8% level?

Michael J. Inglese -- Chief Executive Officer

I would say, look, given where we are with the situation in Brazil, the first half of this year will be lower than even what the fourth quarter was, because the situation wasn't reflected in a full quarter of 2018. But I do believe by the end of this year and when we're talking about the fourth quarter of 2019 at this time next year, I would expect it to be back around the 8% level, give or take a little bit.

Reno Bianchi -- Cantor Fitzgerald -- Analyst

So, you do not expect basically the continuous influx of money into the sector to put further pressure on that statistics?

Michael J. Inglese -- Chief Executive Officer

I think it remains to be seen, but my view based on what I'm seeing today is I don't see a material difference in 12 months. But obviously it will depend upon what I invest my money in and what I do in the way of selling assets as well. I don't think it will necessarily just be driven by the liquidity in the marketplace.

Reno Bianchi -- Cantor Fitzgerald -- Analyst

I appreciate it. Thank you very much.

Michael J. Inglese -- Chief Executive Officer

Thank you.

Operator

(Operator Instructions) And there are no further questions at this time.

Frank Constantinople -- Senior Vice President, Investor Relations

Okay. Thank you, Ashbey. Thank you for your time today. Feel free to reach out if you have additional questions. Have a nice day and thanks for joining us.

Operator

And that concludes today's presentation. We thank you for your participation, you may now disconnect.

Duration: 47 minutes

Call participants:

Frank Constantinople -- Senior Vice President, Investor Relations

Michael J. Inglese -- Chief Executive Officer

Aaron Dahlke -- Chief Financial Officer

Helane Becker -- Cowen and Company -- Analyst

Michael Kriedberg -- Chief Commercial Officer

Susan Donofrio -- Macquarie Capital -- Analyst

Jamie Baker -- JPMorgan -- Analyst

Vincent Caintic -- Stephens Inc. -- Analyst

Michael Linenberg -- Deutsche Bank -- Analyst

Kevin William Crissey -- Citigroup Inc, -- Analyst

Russell Filipski -- Post -- Analyst

Kristine Liwag -- Bank of America Merrill Lynch -- Analyst

Reno Bianchi -- Cantor Fitzgerald -- Analyst

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