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Edited Transcript of 2588.HK earnings conference call or presentation 20-Aug-20 10:00am GMT

·27 min read

Half Year 2020 BOC Aviation Ltd Earnings Call Sep 29, 2020 (Thomson StreetEvents) -- Edited Transcript of Boc Aviation Ltd earnings conference call or presentation Thursday, August 20, 2020 at 10:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * David Ryan Walton BOC Aviation Limited - Deputy MD & 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 ================================================================================ Conference Call Participants ================================================================================ * Ben Hartwright Goldman Sachs Group, Inc., Research Division - Executive Director * Evan Liu;Fosun Asset Management;Director * Han Pu China International Capital Corporation Limited, Research Division - Analyst * Paul Yong DBS Vickers Research - Research Analyst * Tolu Alamutu;Gramercy;Senior Vice President * Yifan Zhou BOCI Research Limited - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, welcome to BOC Aviation's First Half 2020 Results Investor Call. We will begin with Mr. Timothy Ross. Please go ahead, sir. -------------------------------------------------------------------------------- Timothy Ross, BOC Aviation Limited - Head of IR [2] -------------------------------------------------------------------------------- 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 2020. 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 Deputy Managing Director and 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 the 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 available for replay from our website within the next 24 hours as is a transcript of today's management presentation. I'll now hand over the call to Robin Martin for his comments. -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [3] -------------------------------------------------------------------------------- Thanks, Tim, and good evening to everyone on the line. Thank you for joining us for our 2020 Half Year Results Earnings Call. During this period, we achieved a number of major milestones that included signing our 1,000th lease and committing to purchase our 900th aircraft. We're pleased to report a net profit after tax of $323 million for the first half of 2020, up 1% from the same period last year and equivalent to earnings per share of $0.47. This has been achieved in the most challenging operating environment that we and the wider aviation community has ever faced. The COVID-19 virus has sharply impacted demand for travel and governments have restricted the ability to travel in the first half of 2020. In spite of these challenges, our total revenues and other income continued to grow, rising 11% to more than $1 billion for the first half. We ended first half 2020 with total assets of $22.6 billion. As we added longer-term leases during the first half, the weighted average remaining lease term of our fleet rose to 8.5 years, increasing the visibility of future earnings. We finished the first half with cash and committed liquidity of $4 billion and remain well supported by capital markets and our major bank shareholder, Bank of China. In first half of 2020, we raised $2.2 billion in the bond market and drew down $1.6 billion in term loans. We also drew a maximum of $700 million from the $2 billion standby line of credit provided by BOC during this period but reduced this to $300 million by the end of June. Free cash flow after finance expenses was $555 million for the period, just 12% lower than last year. And we have agreed to defer rent equivalent to 2% of our available liquidity. Reflecting the stability of our financial performance in the first half of 2020, our Board has declared an interim dividend of $0.1398 per share payable to dividend -- to shareholders of record on 6th of October. This represents a payout ratio for the half year 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. The 6 years -- sorry, the 6 months in the first half of this year were the most volatile that we've navigated our way through in our 26-year history. Our strategic planning is done on a 5-year horizon and includes both base case and downturn scenarios. We had already prepared for an expected downturn in 2020 and had put additional liquidity in place during 2019. January was a regular month from a traffic perspective, but the impact of COVID began to hit our Chinese customers and those airlines who flew large numbers of Chinese passengers straight after the Chinese New Year holiday in February, with the main impact on airlines generally starting in March and peaking in April as the virus went global. April was the worst month for passenger traffic and gradually, flights began to recover in May and more so in June. The number of parked aircraft in the marketplace peaked in mid-April. During April, only 38% of aircraft globally were in service, and this has recovered to 74% of aircraft by August. The industry was rapid to respond with airlines retiring over 1,000 older aircraft being a mixture of 4-engined aircraft and the other aircraft older than 15 years. Both major airframe manufacturers have reacted by significantly reducing future production of all types of aircraft by an average of 1/3. Governments moved rapidly to provide liquidity to the markets generally, particularly after the capital markets effectively closed for a fortnight in March. Thereafter, we've seen specific support for airlines in the form of grants from governments to cover labor costs and government-guaranteed loans to airlines. Very importantly, we've seen airlines raise money in the capital markets in order to build their -- to rebuild their own liquidity with more than $42 billion raised by airlines in the first half of 2020 in the form of both equity and debt, according to Dealogic. During this period, we've moved to support our customers with new purchase and leasebacks as we've previously suggested to our investors in our downturn strategy, and David will talk more on that, and have already closed 3 debt capital market issues this year, which Thim Fatt will talk about. In addition, we've changed our investment profile to more focus on purchase and leasebacks. Clearly, the impact of COVID has affected manufacturer's supply chains, which in turn has delayed new aircraft deliveries. A number of airlines have reassessed their own capacity requirements for 2020 to 2023 and consequently, we have resculpted our own order profile to match the expected market conditions. The impact of COVID has changed since February, with now the U.S.A., Brazil and India bearing the brunt of new cases. For those countries that successfully navigated the first wave, the second wave has been city-specific rather than country-specific, with more targeted measures being taken by governments as we've seen in Vietnam, South Korea and the U.K. Clearly, the role of government in determining the speed and direction of the traffic recovery is bigger than ever before. China was the first large country to have positive GDP growth in the second quarter. Given this is a health-driven crisis, governments have taken a center-stage role in determining who can fly cross-border and when and who gets government financial support. Those large domestic markets such as China, the U.S. and European Union are leading the traffic recovery. We remain positioned as a global aircraft operating leasing company with a well-diversified portfolio of airline customers. We've placed all of our new aircraft delivering before 2023 and maintain ample backstop liquidity. Consequently, we're well positioned to navigate this downturn. On the senior management side, we're pleased to announce David Walton's promotion to Deputy Managing Director, in addition to his title as Chief Operating Officer. And we welcome Paul Kent, who joined us in London as Chief Commercial Officer for the Europe, Americas and Africa on 1st of June to replace Steven Townend, who will move to Singapore as Chief Financial Officer on 1st of October. 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. -------------------------------------------------------------------------------- David Ryan Walton, BOC Aviation Limited - Deputy MD & COO [4] -------------------------------------------------------------------------------- Thank you, Robert and let me add my thanks to everyone on the call for joining us today. In the first half of 2020, we delivered 23 aircraft to airline customers, of which 3 new aircraft were from our OEM direct orders, one of which was purchased by the customer at delivery and the remaining 20 aircraft were purchase and leasebacks. Our total fleet stood at 571 aircraft at the end of June, comprising 334 owned and 40 managed aircraft with an order book of 197 aircraft. In the first half, our commitments to new investment featured 100% latest technology aircraft that included: 26 Airbus A320NEO family aircraft; 26 Boeing 737 MAX aircraft; and 28 Boeing 787 Dreamliners. These were mostly placed on 12- to 16-year lease terms with customers in Europe, Asia and the Americas. The 20 aircraft that we delivered during the first half as a consequence of these transactions are all placed with well-established airlines and are generating 100% on-time collections. In fact, this new purchase-leaseback business has already contributed $20 million in pretax earnings in the first half, a number that will grow in the second half as these deals contribute for the full period and as we take more deliveries. In addition, after period end, we signed a purchase and leaseback commitment with TUI Travel for 5 Boeing 737 MAX 8 aircraft, which we are expected to deliver in 2021. We demonstrated our agility with the actions taken to resculpt our order book, both in order to address the changes in the market in terms of customer demand and manufacturer delivery schedules and to deploy our capital for better returns. This is a testament to our robust global customer and manufacturer relationships and the speed with which we can deploy large amounts of capital for the right opportunity. And we continue to pipeline good, long-term business with the 76 lease commitments that we signed with airline customers in the first half of 2020. Our net lease yield of 8.2% for the first half of this year remains in the previously indicated 8% to 8.5% range and reflects the amount of new business that we put on the books towards the end of the period. For the first half of 2020, we reported portfolio utilization of 99.8%. The weighted average age of our owned portfolio was 3.5 years at the end of June, which positions us well in this environment. And with that, I'll hand it over to Thim Fatt. -------------------------------------------------------------------------------- Thim Fatt Phang, BOC Aviation Limited - Deputy MD & CFO [5] -------------------------------------------------------------------------------- Thank you, David. Our post-tax earnings were $0.47 per share, up 1% over first half of 2019. Net assets per share, meanwhile, rose by a similar percentage to $6.69 from 31st December 2019. The principal driver of the growth in earnings was an 11% increase in total revenues and other income. This included an improved core lease rental contribution, which remains the principal component of our pretax earnings. This rose 7% in first half 2020 to $366 million. It represents a sustainable long-term stream -- income stream that recurs across the cycle and which net of cost represents 69% of profit before tax. We sold 5 aircraft from the owned fleet during the first half of 2020 compared to 9 aircraft sold in the first half 2019. Gain on aircraft sales was $26 million and accounted for 7% of pretax earnings ahead of last year as we achieved greater profits per aircraft. Interest and fee income amounted to $75 million, 32% ahead of first half 2019 level as we generated more fee income from predelivery payment transactions, and included contribution from 6 aircraft that we classify as finance leases due to their long-term lease terms. After deducting apportioned interest expenses, these items comprised 11% of our profit before tax. Depreciation, our largest expense item, increased by 10% relative to the first half 2019, reflecting the 9% rise in the net book value of our fleet over the last year. Finance expenses increased only 3% to $220 million, as an increase in our borrowing to fund investment in more aircraft was offset by lower interest rates. Our average cost of funds improved to 3.2% per annum in the first half of 2020 from 3.6% per annum, both for the first half and full year of 2019. During the first half, we also recorded a $12 million asset impairment related to the carrying value of 5 Boeing 737 MAX 8 aircraft delivered in prior years. And we provided for doubtful debts of $47 million, representing those lease receivables that exceeded security deposits held for certain airline customers. We had capital expenditure of $3 billion in the first half of 2020, primarily related to our aircraft deliveries and predelivery payments. We had committed CapEx of $1.9 billion for the second half as at 30 June and would expect total aircraft -- CapEx for 2020 of up to $6 billion. This increase in CapEx can be funded from our cash and committed liquidity of $4 billion. During the period, S&P Global Ratings and Fitch Ratings reaffirmed our industry-leading A- credit rating as we tapped the debt capital markets, despite the difficult circumstances associated with COVID, with indebtedness rising 19% to $16 billion as at 30 June compared with end 2019. We raised $400 million in January, $1 billion in April and another $750 million in June, being the first in the aircraft operating leasing industry after the outbreak of COVID to access the debt capital markets in April. This connection to a strong investor base has ensured that we were able to effectively raise new debt in the first half, and our strong free cash flows have allowed us to repay $1.2 billion in debt maturities, leaving us only $0.5 billion to repay in the second half of 2020. Our gross debt to equity at the 30 June was 3.5:1. Now back to Robert for his final comments. -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [6] -------------------------------------------------------------------------------- Thanks, Thim Fatt. During the first half of 2020, we've been able to support our airline customers, whilst continuing to grow our company. The results that our company has produced reflects the tenacity of our employees, who have delivered these earnings working mostly from home, and I want to thank them for their hard work in achieving this. On a personal note, I'd also like to add, this is Thim Fatt's last earnings call with investors. And I'd like to thank him for all of his achievements at BOC Aviation. Since our acquisition by BOC back in December 2006, this includes raising over $31 billion in debt and averaging a return on equity of 15%. This concludes our review of the industry, our company's financials and our outlook, and I'll pass the call back to Tim. -------------------------------------------------------------------------------- Timothy Ross, BOC Aviation Limited - Head of IR [7] -------------------------------------------------------------------------------- Thanks, Robert. This wraps up management's formal commentary. But before we break up for Q&A, I'd like to remind you that on the basis of today's consensus estimates, as a company, we're trading on a forward dividend yield of 5.7% as compared to the Hong Kong market average of 3.7%. We now have time for question and answer. (Operator Instructions) I'll hand the call back now to the operator for the Q&A session. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question comes in from Ben Hartwright of Goldman Sachs. -------------------------------------------------------------------------------- Ben Hartwright, Goldman Sachs Group, Inc., Research Division - Executive Director [2] -------------------------------------------------------------------------------- I wondered if I could just ask you about your customer strength and performance at the moment and particularly with respect to the outlook for deferrals and sort of where you are now, what customers are asking you for and your expectation for the collections into the second half. -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [3] -------------------------------------------------------------------------------- Ben, it's Robert. Thanks for the question. What is interesting about this downturn is the evolution of it. As you would imagine, the early discussions we had were here in China and Asia in terms of sort of customers. And interestingly, those ones were resolved pretty quickly and now they're in repayment mode generally. As the virus spread around the globe, then we began to see sort of other countries. And I would say if you want sort of the back end of the queue in terms of those coming and discussing with us have been sort of the emerging markets, places like Brazil, India. They've sort of been at the back. And so to a certain extent, it's tracked how the virus has moved. Now in terms of -- your question, collections is an interest one because we've got 2 things here at once. On one hand, we've got repayments going on as the early ones. In terms of the second wave, I'm sure someone is going to ask me that soon, so I might as well just deal with it here and now. Interestingly, not a lot of second wave requests at this point. We've just had a couple that we've had to deal with and those involve sort of very short-term extensions. -------------------------------------------------------------------------------- Ben Hartwright, Goldman Sachs Group, Inc., Research Division - Executive Director [4] -------------------------------------------------------------------------------- All right. Great. And then some of the -- I mean, in terms of the -- those receivables that you had to write down in the half, I mean are those... -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [5] -------------------------------------------------------------------------------- We haven't written any down. We've just provided for them. So the way to look at it is, our general cash flow, I would say, bottomed in the month of April. And what we do is we track every month our operating costs net of interest. So April was the bottom month. And from there, basically, it has tracked upwards. So our general cash flow has got better as the second quarter went on. But obviously, in accounting terms, you only provide for those specific airlines, where basically their overdues exceed the security deposits. -------------------------------------------------------------------------------- Ben Hartwright, Goldman Sachs Group, Inc., Research Division - Executive Director [6] -------------------------------------------------------------------------------- Right. Understood. And did they -- I mean are you expecting them to be able to repay or are there any sort of trouble spots where those airlines that haven't been able to pay that you've had to provide for the [billing] trouble? -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [7] -------------------------------------------------------------------------------- Yes. The number of ones where we think there was serious issues, I think, is single digits. We've got it down to that. We've already gone through and agreed in number of carrier deferrals. And I think as well if you want to think of it geographically, I would say pretty much North Asia is in good shape now. North America is in good shape. And I would say those emerging markets where governments haven't stepped up to support airlines are probably the weakest. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Our next question comes from Ivan Zhou of BOCI. -------------------------------------------------------------------------------- Yifan Zhou, BOCI Research Limited - Research Analyst [9] -------------------------------------------------------------------------------- Okay. Congratulations on the stable earnings, anyway in these difficult times. So my question is about the net lease yield. I see you are down a little bit from last year, but naturally the cost of debt is also down. So does it mean our new lease is kind of guiding down? So what's our guidance for the second half of this year and next year of the net lease yield? -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [10] -------------------------------------------------------------------------------- I think realistically, Phang and David and I spend a lot of time discussing this. I think if we say around 8%, that's probably in the right region. And the reason for this, Ivan, is in the second half, we have a lot of deliveries grouped into the last 2 months of the year. And so basically, the contribution of those is going to be very limited this year. -------------------------------------------------------------------------------- Yifan Zhou, BOCI Research Limited - Research Analyst [11] -------------------------------------------------------------------------------- Okay. I see. So I guess a follow-up question about 737 MAX. I see you have quite some impairment on your 5 737 MAX aircraft. But you also hedged around 50 to 60 to be delivered in the future. So is there any kind of risk associated undelivered 737 MAX? Because like this yield may be lower and also any -- or can we negotiate with Boeing and also our airline customers about the lease and also the aircraft price? -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [12] -------------------------------------------------------------------------------- Okay. So in terms of -- first of all, let's deal with delivered. There are 16 delivered MAXs, 5 of them is where we had weak customers. And so we just took a decision there to be prudent. Ten -- the next 10 that we added, of course, are purchase and leasebacks with Southwest, which were on dramatically different terms to where we would have acquired aircraft 2 years ago. And so you remember, I said that we've changed our investment strategy during this period. What we've been doing is basically removing direct aircraft deliveries between now and 2023 and replacing them with purchase and leasebacks. And obviously, we can determine the terms of the purchase and leaseback based on today's market conditions. -------------------------------------------------------------------------------- Yifan Zhou, BOCI Research Limited - Research Analyst [13] -------------------------------------------------------------------------------- Right. But also these PLBs, so how is this leasing yield of these PLB deals? -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [14] -------------------------------------------------------------------------------- I don't go in too much detail. I don't share too much with my competitors, but let's just say it's much better. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Our next question comes in from Evan. Evan, if you could please clarify what's your full name, please, of Fosun Asset Management. -------------------------------------------------------------------------------- Evan Liu;Fosun Asset Management;Director, [16] -------------------------------------------------------------------------------- This is Evan Liu from Fosun Asset Management. And congratulations on your good earnings this -- in this particular half year. So my question is regarding the Norwegian Air Shuttle. Do you mind maybe giving us a little more update on the situation? And because it accounts for about 5% of the asset value, which is kind of a large amount. So I don't know if you can share some of your information on the cash flow impact? -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [17] -------------------------------------------------------------------------------- Okay. So basically, the Norwegian transaction is in a power by the hour period at the moment. As you're aware, sort of Norwegian not flying the 787, so we only recognize revenue to the extent we receive it. -------------------------------------------------------------------------------- Evan Liu;Fosun Asset Management;Director, [18] -------------------------------------------------------------------------------- What about cash flow? Because -- and also, they are on the power by hour mode, and I wonder if you can share some of your information on the cash flow you received from the lease... -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [19] -------------------------------------------------------------------------------- Obviously, you only get paid to the extent they fly the aircraft. That's what power by the hour means. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Our next question comes in from Tolu Alamutu from Gramercy. -------------------------------------------------------------------------------- Tolu Alamutu;Gramercy;Senior Vice President, [21] -------------------------------------------------------------------------------- I just have a bit of -- I just wanted to clarify something. So some of the Chinese banks are reportedly putting measures in place to potentially deal with the effective possible U.S. sanctions and they are obviously also trying to comply with the sanctions that have already been put into place. Is this something that you, as a subsidiary of one of them, is concerned about at all? Or is that not something that you think that investors should care about just at the moment? -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [22] -------------------------------------------------------------------------------- Okay. The key thing to remember is we're a Singaporean company. We're not a Chinese company. So that's the first point. Second point is, yes, we have contingency plans for all sorts of eventualities, and this is one that we have contingency plans for just in case. -------------------------------------------------------------------------------- Tolu Alamutu;Gramercy;Senior Vice President, [23] -------------------------------------------------------------------------------- Okay. That's helpful. And linked to that is funding. Thank you for the information that you provided in terms of what you've secured so far this year and what you have coming up. Can you maybe give us an idea of what else you plan to do potentially maybe in the Eurobond market or through funding from the parent? You also mentioned the $2 billion facility from the parent company, which I guess, you said is now down to only $300 million that's being used... -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [24] -------------------------------------------------------------------------------- No, no. Let me clarify that sort of. We have only used $300 million, so there's $1.7 billion available as of 1st of June. All right? -------------------------------------------------------------------------------- Tolu Alamutu;Gramercy;Senior Vice President, [25] -------------------------------------------------------------------------------- Yes. That's my understanding. I just wanted to know whether that $2 billion was still -- well the $1.7 billion basically was still available? And what your sort of other funding plans might be through the course of the rest of the year, like Eurobond market loans and so on? -------------------------------------------------------------------------------- Thim Fatt Phang, BOC Aviation Limited - Deputy MD & CFO [26] -------------------------------------------------------------------------------- So the balance of the $2 billion that we raised, we have $1.7 billion is available. So given that we have a CapEx for the remaining half of $2.5 billion to $2.7 billion, we would expect to tap the debt capital market, given that there is liquidity. And even then -- even we have [wave 2] and $2.15 billion during the first half and spread has compressed since then. So it is likely that we will go into the debt capital market for up to $1.2 billion and also keep our available RCF available for CapEx expected for first half of next year. -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [27] -------------------------------------------------------------------------------- Yes. So Tolu, just to be clear, what we do is, we just effectively use our RCF sort of to fund ongoing aircraft deliveries, as Phang correctly said, then we would do large debt capital market issues, which then means your RCF is available again. But remember, we hold a total of 4 -- over $4 billion of RCFs. It's not just Bank of China. We're also actively using our third-party ones as well. We've got 70 banks in the bank group. So we'll also tap into sort of some banking facilities as well as we go through the second half. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- There are currently no questions in the queue. (Operator Instructions) And we have questions coming in. Our next call is in from [Chen] Pu of CICC. -------------------------------------------------------------------------------- Han Pu, China International Capital Corporation Limited, Research Division - Analyst [29] -------------------------------------------------------------------------------- This is Han Pu from CICC. And I have 2 questions. And the first one is about the newly added financial lease receivables. Could you add more color on the financial lease deals? And that is the first one. -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [30] -------------------------------------------------------------------------------- Okay. This is Robert. I can easily handle that. So this pertains to 6 777-300ERs that we did on long-term leases to Cathay Pacific back in -- I think it was March this year. And the reason why they had to be booked as finance leases is because of their length. Under accounting standards, once you reach a certain length of lease, you have to classify it as a finance lease. -------------------------------------------------------------------------------- Han Pu, China International Capital Corporation Limited, Research Division - Analyst [31] -------------------------------------------------------------------------------- And I have another question about our expansion strategies. And we see some other U.S. lease aircraft companies are cutting their CapEx for 2020 and '21, but we see we are still increasing our CapEx on the purchase and the leaseback deals. So may I ask how do we see the different strategies of the aircraft industry? -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [32] -------------------------------------------------------------------------------- Yes. I think what it comes down to is your ability to access capital at all times during the cycle. The way that sort of Phang, David and I have always set this company up is to ensure that we can tap the debt capital markets at all points of the cycle. And so we are actually able to do purchase and leasebacks. And as I mentioned right at the start in my presentation, we basically built -- we've built into our planning a downturn plan. We don't just plan for good times. Now the other thing is we've been also sort of changing the nature of our future investments with the cancellation or deferrals of the MAXs and replacing those with purchase and leasebacks. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- We'll continue with our next call from DBS. We have Paul Yong on the line. -------------------------------------------------------------------------------- Paul Yong, DBS Vickers Research - Research Analyst [34] -------------------------------------------------------------------------------- I've got 2 questions. One is, can you please talk about the plans for the 2 aircraft that are off lease? And my second question is with regards to trading of aircraft in the second half, do we have any sort of trends or guidance for that? -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [35] -------------------------------------------------------------------------------- Okay. Thanks, Paul. So in terms of the 2 aircraft that are on the ground, yes, we are actively marketing at the moment to our customers all over the world and intend to get them back up on lease and earning revenue as quickly as possible. The aircraft are in good condition. We're just doing sort of some minor maintenance so we can easily transition them between lessees, and our aim is then to get them back on lease. Now in terms of trade conditions. Good question, Paul. Basically, this year, clearly, the liquidity in the secondhand market is significantly less than last year. We've gone through probably a 5-year period of extremely high liquidity, which meant you saw the difference in debt pricing between a lot of smaller investors, even ABS transactions narrowing with people like ourselves. After March this year, those margins have widened out and a number of players have stopped playing in that market. And so we see relatively less people buying. But we are still seeing aircraft sales in the pipeline and I estimate today, probably we'll finish the year with somewhere around 15 sales done. -------------------------------------------------------------------------------- Timothy Ross, BOC Aviation Limited - Head of IR [36] -------------------------------------------------------------------------------- Operator, I think at this stage, we've run out of time at our end, so we're going to wrap the call up. And we'd just like to thank everyone for participating today, and we look forward to talking to you over the next 6 months. Thank you very much, and good night. -------------------------------------------------------------------------------- Robert James Martin, BOC Aviation Limited - MD, CEO & Executive Director [37] -------------------------------------------------------------------------------- Okay. Thanks.