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Edited Transcript of 2588.HK earnings conference call or presentation 16-Aug-19 8:00am GMT

Half Year 2019 BOC Aviation Ltd Earnings Call

Aug 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Boc Aviation Ltd earnings conference call or presentation Friday, August 16, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* David Ryan Walton

BOC Aviation Limited - COO

* Robert James Martin

BOC Aviation Limited - MD, CEO & Executive Director

* Thim Fatt Phang

BOC Aviation Limited - Deputy MD & CFO

* Timothy Ross

BOC Aviation Limited - Head of IR

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Conference Call Participants

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* K. Ajith

UOB Kay Hian Research Pte Ltd - Director of Asia Transport Research

* Paul Yong

DBS Vickers Research - Research Analyst

* Shashank Damji Savla

Liontrust Asset Management PLC - Fund Manager

* Shaurya P. Visen

Goldman Sachs Group Inc., Research Division - Associate

* Yifan Zhou

BOCI Research Limited - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the BOC Aviation First Half 2019 Results Conference Call. Timothy Ross, please begin.

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Timothy Ross, BOC Aviation Limited - Head of IR [2]

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Thank you, operator, and welcome everybody to BOC Aviation's earnings call to discuss our interim results for the 6 months ended 30th of June 2019. With me today are our Managing Director and Chief Executive Officer, Robert Martin; our Deputy Managing Director and Chief Financial Officer, Phang Thim Fatt; and our Chief Operating Officer, David Walton.

Please note that some of the information you'll hear during our discussion today may consist of forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. You should not place undue reliance on any forward-looking statements and you should review our results announcements for full details. Please also note that all currency references in today's call are in U.S. dollars only.

A copy of our earnings announcement is available both via Hong Kong Stock Exchange and in the Investors section of our website at www.bocaviation.com and a conference call presentation is also available in the Investors section of our website. This call is being recorded and will be able available for replay from our website within the next 24 hours as is a transcript of today's management presentation.

I'll now turn over the call to Robert Martin for his comments.

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [3]

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Thanks, Tim, and good afternoon to everyone on the line. Thank you for joining us for our 2019 half year results earnings call. We're pleased to have just achieved a major milestone during this period, having earned USD 4 billion of cumulative profit since inception. We're also delighted to report a net profit after tax of $321 million for the first half of 2019, up 8% on the same period last year and equivalent to earnings per share of $0.46. We saw sustained growth in our total revenues and other income, up 13% to $930 million. Our core lease rental contribution continues to be principal revenue component of our pretax earnings. This held steady in first half 2019 and represents a sustainable long-term income stream that recurs across the cycle. We ended the first half with total assets of $19.2 billion and grew the net book value of our aircraft to $15.9 billion. Given a weighted average remaining lease term of 8.2 years, this provides a solid base for our future earnings.

Reflecting the ongoing growth and our financial performance in the first half of 2019, our Board has declared an interim dividend of $0.1388 per share payable to shareholders of record on the 3rd of October. This represents a payout ratio for the first half of 30% of net profit after tax and is consistent with previous interim distributions. The Board's policy continues to be to pay up to 35% of full year net profit after tax to shareholders in the form of dividends. We finished the first half with cash and committed liquidity of $3.8 billion. This positions the company well to fund both our contracted investments in aircraft and to finance further growth in the portfolio.

Turning to the market backdrop, macro conditions remain generally positive for our industry. On the demand side, the airline industry continues to match long-term growth expectations with air travel demand remaining robust. Airline passenger traffic as measured by IATA, the trade association for the world's airlines, rose 4% in the first half, in line with the long-term trend rate. This underpins IATA's earnings estimates for 2019 for the airline industry of over $28 billion, its fifth year of substantial industry profits in a row. These are underpinned by oil prices at an average 8% lower than 2018 and anticipated passenger traffic growth of 5% in 2019.

On the aircraft sales side of the business, the availability of the U.S. dollar liquidity and the investor market remained strong. This continues to drive the healthy demand by aircraft investors for purchase of our aircraft with leases attached. We signed an agreement to sell an aircraft portfolio to Silver Aircraft Investment Limited in mid-July. Sales of the 17 aircraft with leases attached are expected to close in the second half of this year, and we will continue to provide management services for this portfolio. We expect to hit our sales guidance for the full year of around 30 aircraft. Obviously, manufacturer delivery delays have been a key challenge for the first half of 2019 and will continue to be for the balance of the year. By the end of the first half, we encountered delays over the half year of a total of 18 aircraft, comprising 12 Airbus and 6 Boeing, of which 12 were due to come onto our balance sheet. We continue to see delays in Airbus deliveries arising from industrial constraints that will affect up to 7 Airbus aircraft in the second half delaying these into 2020. With regards to Boeing, in its latest second quarter earnings call, it acknowledged that the return to service date for the 737 MAX aircraft has been further delayed to October 2019 earliest but subject still to regulatory approvals. Therefore, we expect that some or all of our 23 remaining 737 MAX aircraft that were scheduled for delivery in 2019 will now occur later, and we're working with Boeing and our customers on a revised delivery time frame.

As a result, we expect delays could result in up to -- could result in delivery of up to 30 aircraft currently scheduled before the end of this year now occurring in 2020 or beyond. We are currently working hard to replace the delayed CapEx. The total number of aircraft already delivered or scheduled for delivery onto our balance sheet in 2019 is currently expected to be 39.

I'll now hand the call over to David to speak to our operations and business development and then Thim Fatt will take over for a more detailed review of our P&L and balance sheet.

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David Ryan Walton, BOC Aviation Limited - COO [4]

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Thank you, Robert, and let me add my thanks to you all for joining us this afternoon. In the first half of 2019, we delivered 25 new aircraft to airline customers from our order book, including 5 where the customer exercised purchase options at delivery, giving us 20 new aircraft added to the owned portfolio. Our total fleet stood at 499 aircraft at the end of June, comprising 314 owned and 23 managed aircraft and an order book of 162 aircraft.

Some of the highlights of the first 6 months included delivering our 350th Airbus aircraft, an A320NEO, to our long-standing customer TAP Air Portugal, delivering the first 3 A320NEO aircraft on lease to Air Macau and the delivery of the first of 7 Boeing 787-9 aircraft to Air Europa.

After the period end, we announced 3 significant transactions. We signed leases for 10 new Airbus A320NEO aircraft placed to Air China scheduled for delivery in 2019 and 2020. We signed a purchase lease back agreement with Qatar Airways for 3 Airbus A350-900 aircraft, which are expected to deliver in the third quarter of this year, and we signed leases for 4 new Airbus A321NEO aircraft placed with Scoot, a subsidiary of Singapore Airlines.

These transactions illustrate the strength of our global customer reach, the longevity of our manufacturer relationships, the speed with which we can capitalize on opportunities and the benefits of our scale. Our team continues to build good long-term business as we signed 39 lease commitments with airline customers in the first half of 2019.

Also during the first half, we generated nearly 54% of our lease revenues out of Asia Pacific, reflecting the region's growth, and we delivered our first new Airbus A330-900 aircraft to Lion Air. Our net lease yield was stable at 8.4% for the first half of this year.

During the first half, we had 10 aircraft redeploy due to customers that eventually ceased operations. Seven of these were owned aircraft and 3 were managed. We rapidly put these aircraft back on revenue, relying on our fully in-house technical, legal, risk and portfolio management teams who were well prepared and who acted quickly and on our leasing team which found good redeployment opportunities. Due to these efforts, the aircraft we redeployed were off lease for less than 1 month on average, and we had another period with strong portfolio utilization of 99.6%.

With that, I'll turn it over to Thim Fatt.

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Thim Fatt Phang, BOC Aviation Limited - Deputy MD & CFO [5]

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Thank you, David. Our post-tax earnings were $0.46 per share, up 8% over the first half of 2018. Net asset per share, meanwhile, was 2% to $6.18 from 31 December, 2018. The principal driver of the growth in earnings was the 13% increase in total revenues and other income. This was supported by rising core lease rental contribution of $341 million, which net of cost represented 80% of profit before tax.

Our lease rental income rose 11% compared to first half of 2018 as we increased the size of our fleet. Depreciation, our largest expense item, increased by a similar amount relative to first half 2018, also driven by the growth in the size of our fleet.

We sold 9 aircraft from the owned fleet during the first half 2019 compared to

(technical difficulty)

sold in the first half of 2018. Gains on aircraft sales were $22 million and accounted for 6% of pretax earnings.

We expect a greater contribution in the second half as we are now focused on concluding a portfolio sale of 17 aircraft with leases attached that were signed in July.

Our aircraft portfolio remain one of the youngest in the industry, and we have kept the weighted average age of our owned portfolio at 3.1 years.

Interest and fee income amounted to $57 million, almost twice first half 2018 level as we generated more fee income from pre-delivery payment transactions. After deducting apportioned interest expenses, these items comprise 8% of our profit before tax.

Financial expenses increased by $50 million, driven primarily by an increase in our volume as we invested in more aircraft. As the proportion of fixed-rate leases have increased, we have lifted the proportion of our fixed-rate debt during the first half, which also contributed to increase in our average cost of fund to 3.6% in the first half of 2019 from 3.3% for the full year of 2018.

At the end of the period, our total assets had increased 5% to $19.2 billion from the end of 2018. We had capital expenditure of $1.5 billion in the first half of 2019, primarily related to our aircraft delivery and pre-delivery payments. We have committed CapEx of $1.5 billion for the second half, and we expect to grow total CapEx for 2019 to $3 billion to $3.5 billion.

Our indebtedness increased, rising 5% to $13.1 billion as at 30th June compared with end 2018, with our gross debt to equity ending the period at 3.1. Standard & Poor Global Ratings and Fitch Ratings have reaffirmed our industry-leading A- credit rating, which we continue to leverage to raise more than $1.3 billion under our GMTN Program.

Now back to Robert for his final comments.

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [6]

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Thanks, Fatt. We're proud of the results that we've delivered in the first half and we believe that they demonstrate the benefits of our disciplined approach to fleet growth, our financial strength and our dedicated teams and employees. We're pleased to note that the annualized first half total return for our shareholders according to Bloomberg was 35%.

This concludes our review of the industry, our company's financials and our outlook and I'll pass the call back to Tim.

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Timothy Ross, BOC Aviation Limited - Head of IR [7]

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Thanks, Robert. This wraps up management's formal commentary. We now have time for Q&A. (Operator Instructions) I'll hand the call back now to the operator for the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question, Ivan Zhou from BOCI.

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Yifan Zhou, BOCI Research Limited - Research Analyst [2]

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Congratulations on the very strong start. Sir, my question is about the outlook for the interest and the fee income. It looks very strong in the first half. And also is there any risk associated with PDPA finance because maybe some of that will be about the MAX aircraft?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [3]

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Okay. This is Robert. Firstly, we've seen a lot of demand for this product over the last 12 months. So the results you're seeing in the first half are a period when we have, for the first time, the full impact of all of the transactions we've put in place. So that's one of the reasons why the amount is much higher than previously. Interestingly, in the predelivery financing part of the marketplace, there aren't that many players and because of our unique situation where we have contracts in place with all the manufacturers and we have access to unsecured financing that allows us to do this more easily than others in the market. In terms of the risk, we obviously do this with an eye to if anything goes wrong, we actually take the aircraft onto our balance sheet and we lease it out to other customers, which is part of our core competency of the company. So we will only do things for aircraft that we would otherwise consider investing and this is not something where we move away from that.

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Yifan Zhou, BOCI Research Limited - Research Analyst [4]

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Okay. Can I ask a follow-up question? About the 737 MAXs about to delay into I think next year. So what's our strategy for the business? Are we going to be like more aggressive on -- to get the deal or something?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [5]

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Okay. So it's clear, Ivan, and you can tell from the way that we've been very frank in our news to the investors on how we think it could impact us with potentially losing up to 23 MAXs in the second half of the year. This is something that's out of our control. But as when we've had previous situations where we lose balance sheet, we've looked at alternative ways to grow the balance sheet through our pre-delivery payment plus lease financing and also our purchase leaseback financing. You will already note, we've announced the transaction for 3 A350 aircraft on long-term leases to Qatar Airways, and we will be looking for other similar transactions in the second half of the year, both single-aisle and widebody aircraft.

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Operator [6]

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Our next question, Paul Yong from DBS.

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Paul Yong, DBS Vickers Research - Research Analyst [7]

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I'm going to start with a question on the staff costs. I think staff compensation cost was down by about 9% and I think the reason stated was lower bonuses accruing to staff. Perhaps you can explain to me why staff bonuses are lower given that the results look pretty decent from my perspective.

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [8]

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First of all, Paul, thanks for your sympathy towards our staff. They appreciate it. Okay. Last year was a unique year because we had 2 things happening at once. One is, we had the final payments accruing from our previous 5-year plan, which had been the period up until the end of 2016, where there was a tail on adjustment for that plan. This year, we do not have that. So that basically will cover part of the amount. And the second thing is, we only accrue for bonuses in line where our performance is, and obviously, we have a larger equity base than we had at the end of last year and so that's the base at which we're accruing. So those are the 2 main reasons why it looks low at this point. Don't worry though, I'm driving the troops very hard and I hope to set it up by year-end.

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Paul Yong, DBS Vickers Research - Research Analyst [9]

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Let me follow up with another question and this is more on some of the other costs. There was a $3.8 million charge on trade receivables in excess of what the security deposits cover. Can you provide a little bit more color on that situation? And whether or not you think actually that we could collect back the rest or yes, what restitution there we could do? And then, of course, the cost of repossessing the aircraft, perhaps a little bit more color on what the quantum was as well.

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [10]

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Okay. So why don't I take the first one, I'll let David take the second one because David is our leader when it comes to moving planes around. So on the provision, so first of all, let's be very clear what about the provision is for. It's a provision for financial receivables, meaning payments due under leases. The way that we run the company, first of all, is remember, we collect our lease rentals monthly in advance and we also collect a security deposit. So if we have with any lessee, at the balance sheet date, a situation where they're even $1 above the security deposit, we will put a provision in our accounts. And so basically where we ended up, we had 2 types of situation (inaudible) we had that. One was where we had one particular airline group in North Asia who basically was slow on payments at the half year and a couple of their subsidiaries did go above the security deposit, but we intend to collect that as soon as possible in the second half. And the second is we had 2 individual single aircraft exposures on the MAX side where those 2 counterparties basically went slightly above their security deposit, and so we've provisioned for that as well.

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Paul Yong, DBS Vickers Research - Research Analyst [11]

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Right. So does it mean that they are still -- how do I say, the relationship is still ongoing? The aircraft are not being repossessed? They're just slow on their payments?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [12]

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That's correct. That's correct. And bear in mind, as a leasing company, if you compare us as collecting money from a bank, we collect monthly in advance, but a bank, they'll collect quarterly in arrears. So we're always 4 months or about 120 days ahead of a bank in terms of when we do collections. But these are all situations where the surviving customer, the customer has not defaulted, it's

(technical difficulty)

bankrupt and basically, we expect to recover the money. Okay. So let -- maybe let me just turn to David then who will respond to the second question.

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David Ryan Walton, BOC Aviation Limited - COO [13]

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Thanks, Robert. Yes, so the repossessing costs that we've recorded in the first half were really quite low. It wasn't material. And the reason for that is because we had aircraft that we redeployed that we repossessed at the end of last year and delivered in the first few days of January. So the impact of those aircraft was really felt last year. And then as I'm sure you're well aware, Jet Airways ceased operations this year. And that was the one that was the major activity in the first half. But those (inaudible) very quickly with not a lot of out-of-pocket expense. And so -- and remember, as Robert was saying, we have very well-structured leases. We collect security deposits. We have maintenance reserves for our birds who are sort of down at the lower end of the food chain in terms of credit quality. And so we can use those resources as well. And so I would just say that the total expenses that we recorded in the first half were not material.

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Operator [14]

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Our next question, K. Ajith from UOB Kay Hian.

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K. Ajith, UOB Kay Hian Research Pte Ltd - Director of Asia Transport Research [15]

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Congratulations for a good set of results. Two questions from me. One is on the cash flow. I noticed an increase in receivables. Is that something that we should be concerned with? Is that something to do with some of the 5 repossessed aircraft? So that's my first question. Then I'll follow up with another question.

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [16]

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Okay. So in terms of the receivables, I -- as I just explained to Paul, the main receivables situations are this one North Asian sort of airline group and secondly, a couple of smaller situations relating to the MAX. So I'm not overly concerned about receivables in total at this point. I think we'll get them under control. And as you know the management here, one of our KPIs is collection of cash. And so you can be sure we're very, very focused on that.

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K. Ajith, UOB Kay Hian Research Pte Ltd - Director of Asia Transport Research [17]

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Okay. Second question is relating to the finance cost. So I noticed that finance cost amounted to about, what, 3.5% or 3.6% for first half '19. So given the fact that LIBOR rates continue to decline, the general trend for interest rates is down, do you expect growth in financing cost to taper down in second half '19?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [18]

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Okay. So the first thing to note is, if you look at the presentation, if you look at our proportion of fixed-rate leases, we're now up at 79%. And the proportion of fixed-rate debt has now gone up to 73%. So our rates are actually pretty much fixed. We don't have a lot of floating-rate debt. We're in a very strange point of cycle where actually LIBOR is above fixed rate, which certainly, I don't remember in the last 15 years of being here. And so we took the decision to fix basically so that we could protect the operating margin in our leases. That's why we've done that. Now given that we've done so much fixing, then in the second half, it's only going to be the impact of any incremental financing that we do or any refinancing. We have refinancing due, I think of $0.6 billion, if I remember correctly. And then basically, it's a matter of the additional assets we intend to add to the balance sheet. And as Mr. Phang mentioned, we're aiming to try and get up around $3.5 billion in total by the end of the year. That's about another $0.5 billion worth of assets that we'd need to finance. And so the net effect, I feel, it's not going to move around very much, okay. The 3.6% at the half year, it may come down slightly, but it's not going to come down significantly.

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Operator [19]

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The next question, Shaurya from Goldman Sachs.

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Shaurya P. Visen, Goldman Sachs Group Inc., Research Division - Associate [20]

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This is Shaurya from Goldman Sachs. I have a quick one you -- one for you on your lease rates. So first is on the NEOs, right, that you are currently signing the deals on and placing for the next year. Are you seeing higher lease rates than your current book? And on a related note, second is on MAX. So the MAX that will come in next year, do you expect the lease rates to be lower there? And also do you think to some extent, that'll be offset by lower pricing from Boeing? So that is from my side.

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [21]

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Okay. There's a lot of things there, Shaurya. So let me basically go through them one by one. So first of all, used aircraft placements. Because we write long-term leases and we tend to trade aircraft in the first lease, we actually don't have a lot of aircraft coming off lease. Our next available used aircraft is not until August 2020. That's a year away. On the placements that we've done during this year so far, most of the aircraft have been 8 years or older. So I think it's unrealistic to expect the same rental as you would've done on a new aircraft, but I what I can say is relative to what we've seen a year before on a similarly aged aircraft, we've seen an increase in rates, okay. That was the first question. What was the...

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David Ryan Walton, BOC Aviation Limited - COO [22]

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The second question was MAX rates lower than...

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [23]

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Okay. So MAX rate, the jury is out. I think it's the best thing to say there. Realistically, when you look at the situation, 2020 is going to be a big year for Boeing deliveries. It has to be because they're going to have to catch up with all of those that were not delivered in 2019. And so that will certainly put some pressure on the marketplace. So there will -- I think there will be some pressure on rates during 2020 on the MAX. And then in terms of offset by Boeing prices, all I can tell you is we are in significant negotiations with Boeing as to how we close out this whole situation of the delayed delivery this year. I can't give you any feedback on that now, but I will maybe at the end of the year when we're able to do so.

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Operator [24]

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Our next question, Kristian from Liontrust.

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Shashank Damji Savla, Liontrust Asset Management PLC - Fund Manager [25]

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My name is Shashank Savla from Liontrust. The first question was on the -- you've mentioned that the cost of funding has increased to 3.6% because of the increase in the fixed-rate debt. Why hasn't the lease rate factor gone up because similarly, you've seen an increase in the fixed-rate leases as well?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [26]

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Yes. Okay. So there's 2 elements going on. One is the increase in the amount of hedging we've done. So bear in mind, we haven't -- on those existing leases, we've just hedged them, we haven't added new debt. And then in addition to that, the debt we've raised against the increased size of the portfolio this year. And if you look in the presentation, let me just find the page, Page 8 in the presentation, you'll see that we've added, in net terms, about $0.9 billion of aircraft in the first half of this year. So it's a combination of those 2 factors. Now why hasn't the overall return gone up, because at the same time, we've seen floating rates drifting downwards and we have a number of floating-rate leases, where obviously, those floating rates -- those lower floating rates have come through. So it's a combination of those factors. And the final thing is obviously, there was some short period, as David mentioned earlier, when we're moving planes around where we're going to receive rental for that month's transition.

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Shashank Damji Savla, Liontrust Asset Management PLC - Fund Manager [27]

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Great. And can I ask about the MAX 737, the 6 aircraft which you currently own, are they grounded or are they operational? And what happens to the lease payments for those aircraft?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [28]

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Okay. So first of all, they are grounded. Nobody is allowed to fly a 737 MAX for commercial service at the moment and until the aviation authorities basically change their view. That is the situation. As I mentioned earlier in the call, Boeing were indicating, they thought the earliest return to service is likely to be around October this year. So when they're parked, they are put in a parking program. Our technical teams inspect them to make sure they're in proper parking programs because you can't just park an aircraft and leave it. You have to make sure that a certain minimum maintenance is done even when it's parked. So what was the final question?

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David Ryan Walton, BOC Aviation Limited - COO [29]

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And what happens to the lease payments.

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [30]

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Oh, what happens to lease payments, okay. Varying approaches from our customers. The good ones pay us on time under a couple of single aircraft exposures where they have not been so good in terms of paying us.

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Operator [31]

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Next question, [Leah Yu] from [Volcom International].

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Unidentified Analyst, [32]

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Congratulations first of all on the major milestone. I really just have one very quick question on the MAX again. And it's on what happens after it does get re-approval by the FAA? Because we do know that I think right now, one of the issues is it could be slightly piecemeal in terms of all the different countries approving the 737 MAX once it is approved by the FAA. So for a global lesser like BOCA, would there be a potential issue between just like a much longer delay of time between when it's approved in U.S. and when it is approved everywhere else in the world?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [33]

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Okay. So I'll try and summarize what was the 1-hour discussion between myself and the Board earlier today into a short period. So first of all, let's split the 737 MAX into 3 categories. The first one is those aircraft that have already been delivered to customers. In our case, that's 6 aircraft. There, you are reliant on the local aviation authority whoever is overseeing the operations of that airline reauthorizing the aircraft to fly. So that depends on the local authority. In addition, the airlines will have an eye to who -- which authorities around their country that they fly to also needs to authorize it because if you're in a small country, Singapore being an example, you can't just fly your plane around Singapore, you've got to fly to other locations. And so you'll also need to make sure that whichever countries you're flying to have also authorized it. So that's the first point. Those are the 6 that are delivered. Then there is those planes coming down in a production line but have not been parked by Boeing. And with those aircraft, as soon as the individual aviation authorities basically have approved, then basically the planes can be delivered to customers. There is then a final group, which is then those aircraft that have already been delivered and are parked, but they're not delivered to us, they're parked in Boeing. Those are the ones that will take longer to come back to market because generally, they'll be in parking programs and there will also be limitations on how many Boeing can deliver in total each month to customers. We estimate that at the moment, they're producing 42 on the production line. Maybe they could deliver a total of 70 a month. Above that becomes much more logistically difficult for them. And so for those parked aircraft, we could be talking up to 1 year's worth of delays, to be very frank with you. Now the big debate which is still ongoing is how much training of what type of training will be needed by the individual aviation authorities. There is no conclusion yet on that. That is still being discussed. And ultimately, that will also drive how long it takes before each of these aircraft will be able to fly under each aviation authority. Okay, that's the short version.

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Operator [34]

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Our next question, [Amin] from JK Capital.

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Unidentified Analyst, [35]

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I just wanted to clarify the point you made on the MAX relaunch. When the MAX gets relaunched, you said the lease rate will come down. So are you saying that Boeing will reduce the procurement cost for you as well so that your lease yield remains the same in these deployments whenever it happens?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [36]

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That's not what I said. No. Basically, what I said was there will be a lot of aircraft delivering into the market next year so there will be market pressure downwards on MAX rates. What we do with Boeing and the purchase prices are an entirely separate discussion to that, which we will progress during the balance of this year as it becomes clearer what is the damage to us and basically, how much compensation we need and what form we take that compensation in.

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Unidentified Analyst, [37]

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So in that case, I mean do we have a clarity on what kind of lease -- net lease yield we might generate on these MAX aircrafts when they get relaunched?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [38]

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No, it's too early to tell yet. Let's get to the point of the aircraft being able to fly first and then we can assess that.

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Unidentified Analyst, [39]

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Okay. And one more follow-up question on the lease rates being strong this year. Is it due to the short supply of aircrafts due to the 737 MAX issue?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [40]

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So if you look at our portfolio as a whole as to what has delivered and will deliver this year, it's a combination of purchase leaseback we've done

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repayment in the leases plus leases on our Airbus fleet. We're now at a point where we only have 2 A320NEOs left to place out of our total orders of A320NEOs and those are really what have been driving our lease returns this year.

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Operator [41]

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Our next follow-up question, Paul Yong from DBS.

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Paul Yong, DBS Vickers Research - Research Analyst [42]

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I've got a couple of follow-up questions. First one is with regards to making bulk orders. Our -- the number of aircraft that we have on order is now down to 162. Have we started thinking about making bulk orders from, I guess, both OEMs and -- how do we think about that? Obviously, I think because organic deliveries help our business to have higher growth and visibility beyond 2020. That's my first question. And for my second question, if I assume that the rest of the aircraft scheduled for delivery in 2019 has been fully placed out, what's the situation for 2020? How much of the aircraft scheduled for delivery in that year has been placed out?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [43]

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Okay. So Paul, let's get bulk orders first. Yes, as you know, we planned well in advance about our future procurement. We tend to work in 5-year plans and we're already thinking about the period right the way through to 2025 at this point. How we engage and what we engage on with the manufacturers is still under discussion, but we are certainly focused on that point. And traditionally, we've taken over 60% of our aircraft under direct manufacture orders. Okay. So I don't see that changing. We're focused on that. So placement rate. So put aside the MAX, we only have one Airbus plane left next year, which is November, and on the used aircraft we have a couple, I think it's 1 in August, 1 slightly later in year. On MAX, basically it's up in the air at the moment. And let me give you more guidance on that once we have had discussions with Boeing because at the moment, we're not sure which planes deliver when next year. Okay.

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Paul Yong, DBS Vickers Research - Research Analyst [44]

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Okay. So most of the uncertainties we've got through the MAX program?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [45]

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All except for 1 new aircraft, yes. And I'm very confident for that 1 new aircraft.

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Operator [46]

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Our next question, Kristian from Liontrust.

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Shashank Damji Savla, Liontrust Asset Management PLC - Fund Manager [47]

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Just a follow-up question. The cash collection rate, which was close to 100% for the last couple of years, that's come down to 97%. So any particular reason for that?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [48]

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Yes. It's -- as I've mentioned earlier, it's -- we have one particular North Asian group who was slow on payments, and secondly, it's the impact of, there's a couple of MAX late payers, and of course, we had Jet Airways where we had a small amount of non-collected overdues.

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Shashank Damji Savla, Liontrust Asset Management PLC - Fund Manager [49]

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Right. And on the gearing which is the gross debt to equity of 3.1x, so what's the target or the level you are comfortable with? And when do you think you'll reach that level?

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Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [50]

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Okay. The honest answer is slower than I thought. When you lose 30 single-aisle aircraft out of the second half of the year, that's quite disappointing. So I think we'd originally indicated to everyone, we're planning to get up to 3.5:1 whenever we can, but realistically, that's going to take us well past this year, probably to the end of next here.

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Timothy Ross, BOC Aviation Limited - Head of IR [51]

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Great. Well, ladies and gentlemen, that concludes your questions for the afternoon. I'd like to thank you for your attendance and look forward to speaking to you, if not before, in 6 months' time.

Thank you, operator.

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Operator [52]

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Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.