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Edited Transcript of AYR earnings conference call or presentation 6-Aug-19 2:00pm GMT

Q2 2019 Aircastle Ltd Earnings Call

Stamford Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Aircastle Ltd earnings conference call or presentation Tuesday, August 6, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aaron A. Dahlke

Aircastle Limited - CFO

* Frank C. Constantinople

Aircastle Limited - SVP, IR

* Michael J. Inglese

Aircastle Limited - CEO & Director

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Conference Call Participants

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* Catherine Maureen O'Brien

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Koosh Rohit Patel

Deutsche Bank AG, Research Division - Research Associate

* Kristine Tan Liwag

BofA Merrill Lynch, Research Division - VP

* Mark Stephen Streeter

JP Morgan Chase & Co, Research Division - MD

* Moshe Ari Orenbuch

Crédit Suisse AG, Research Division - MD and Equity Research Analyst

* Scott Jean Valentin

Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst

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Presentation

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Frank C. Constantinople, Aircastle Limited - SVP, IR [1]

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(technical difficulty) Thank you, operator. Good morning, everyone, and welcome to Aircastle Limited's Second Quarter 2019 Earnings Call. With me today are Mike Inglese, Chief Executive Officer; Aaron Dahlke, Chief Financial Officer; and Doug Winter, Chief Commercial Officer.

I would like to point out that 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.

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Michael J. Inglese, Aircastle Limited - CEO & Director [2]

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Thanks, Frank, and welcome to Aircastle's Second Quarter 2019 Earnings Call. As usual, I'm going to discuss our second quarter results and then review market conditions and our strategy for the second half of the year. I'll then turn the call over to Aaron to cover our financial results for the quarter, followed by Q&A.

Before I get into specifics, I'd like to highlight the following. First, we had a strong second quarter with quality core earnings and gains from sales expected in Q2 that will slip into the third quarter. We've completed the task of repossessing and re-leasing the aircrafts we have with Avianca Brazil and Jet and expect our utilization and net interest margin will be back to historical levels during the second half of this year.

Overall, the market environment continues to be robust with continued demand for leasing of our mid-life narrow-body aircraft and strong demand in the secondary market. While we don't own or have commitments to acquire Boeing 737 MAX aircraft, we are closely monitoring the situation. The grounding has created more strength and interest in our 737NGs, but the benefits for us are modest given that most of our fleet is already on fleet.

Let me quickly start with our Q2 results. For the quarter, we reported diluted EPS of $0.41 per share and adjusted net income per share of $0.48. Our book value per share at the end of the quarter was $26.96 per share, up 7.4% versus a year ago while the cash return on our shares, i.e, our dividend yield averaged 5.9% over the past 12 months. This represents a total 12-month return of 13.3%. Our trailing 12-month cash ROE was 11.8%, and our after-tax GAAP ROE was 10.3%.

There continues to be strong secondary market demand for aircraft, meaning it's a good time to be selling mid-aged aircraft. There are multiple bids, prices are strong and there is abundant available financing. Since beginning of 2015, we've sold 116 aircraft for total gains of $201 million. We had several aircrafts that were expected to close in Q2 flip into the third quarter, and we estimate that this timing shift reduced our Q2 '19 diluted EPS by about $0.05. Aaron will cover the timing of our sales in a few minutes, including our guidance for gains on sale in the third quarter. There are many more narrow-body operators than wide-body operators.

There are more routes where these aircraft can be used and there's less operator-specific customization. This supports continuing demand for narrow-body aircraft and makes it easier to move them from one lessee to another. For this reason, our acquisition strategy has been focused on identifying narrow-body aircraft investment opportunities where we see the best value and liquidity and market depth. In many instances, we're assuming that we are acquiring aircraft on their last lease and plan to part them out at lease end. Substantial majority of our recent aircraft acquisitions have involved other aircraft lessors who are seeking to manage their liquidity, leverage and portfolio metric. We have complemented this with a number of transactions with airline customers involving appropriately priced special situations.

For the full year 2019, we have closed or committed to close 40 narrow-body aircraft for about $1.2 billion. During the second quarter, we acquired 10 aircraft for $325 million. And for the second half, we have committed to acquire an additional 16 aircraft for $404 million. Our professional reputation and capability as a reliable counterparty enable us to continue to find situations that play to our competitive strengths of speed and execution certainty.

At the end of the second quarter, our total fleet of owned aircraft increased to 268 units with 238 or 89% of the total representing narrow-body. We quickly placed the aircraft we repossessed from Avianca Brazil and Jet Airways, underscoring our placement capability and the demand for aircraft in our fleet. We told you on our first quarter call that our utilization rate would be impacted by the aircraft that were previously on lease with these airlines. I'm pleased to report that we leased all 18 aircraft that we repossessed and delivered 17 of those aircraft to the next operators. The only undelivered aircraft is undergoing maintenance work, and we expect it to deliver to its new customer during the third quarter.

Utilization in the quarter started to improve and came in at 94% as the grounded aircraft began gradually transitioning during the latter part of the quarter. We expect utilization yield and cash net interest margin to return to more normal levels in the second half of 2019. In addition, our aircraft monitoring list remains at 0 at the end of the second quarter, and we continue to have strong liquidity positions with minimal forward commitments. We've made significant progress on our 2019 capital allocation plan by acquiring more than $1.2 billion of narrow-body aircraft, paying a quarterly dividend to our common shareholders that has yielded on average 5.9% over the past year and repurchasing $12 million of our common shares year-to-date at an average price of $18.29.

Aircastle has generated $5.5 billion of operating cash flow from 494 aircraft acquired since its formation, and we remain focused on creating long-term value by growing the business in a responsible and profitable manner. We believe that our strategy and market approach maximizes the value for our investors and minimizes the leverage liquidity risk associated with large forward commitments and potential capital plight associated with some unforeseen market event. Given our philosophy of providing a regular return of capital to our shareholders, Aircastle's Board approved the company's 53rd consecutive quarterly dividend of $0.30 per share payable on September 16. Since 2011, we've increased the dividend 9x, tripling the payout from $0.10 a share per quarter to $0.30 per share.

Turning to the current business environment. According to the World Bank, 2018 global GDP was $86 trillion, up 3% over 2017. The aircraft leasing industry continues to perform well. The most recent IATA air traffic results showed 4.6% RPK growth through the first 5 months in the year, down slightly from 7.4% in 2018 and 8.1% in 2017. IATA is forecasting full year air traffic growth of around 5% compared to global GDP growth of about 2.7% for 2019. Air traffic growth continues to outpace both capacity growth and global GDP growth. There continues to be strong demand for current technology mid-aged narrow-body aircraft as industry-wide passenger load factors reached a record high in May at 81.5%. Year-to-date, passenger load factors were also very high at 81.3%. As we've been saying for some time, wide-body aircraft continue to be oversupplied and far more challenging to place at attractive rates.

Mid-aged single-aisle rental rates remain solid, especially compared to rents for new aircraft and values are robust due to available liquidity and low interest rates. In the second half of 2019, we plan to selectively sell aircraft into this continued market strength. Strong traffic growth, limited near-term aircraft availability due to issues surrounding the MAX and relatively low oil prices have strengthened the overall marketability of current-generation aircraft. Decline in interest rates since year-end and financing availability have also enhanced the attractiveness of investing in aircraft in a general sense.

To summarize, our strategy remains focused on disciplined and intelligent capital allocation. We will invest in aircraft that we expect to deliver solid shareholder returns, and we'll continue to opportunistically sell aircraft to reduce residual value risk and crystallize gains. In summary, we'll continue to run our business in a disciplined fashion. We have an experienced, focused and nimble team that will take advantage of accretive aircraft investments and sales opportunity. We have an investment-grade rating with access to attractively priced capital to drive profitable growth, and we're defensively positioned with a conservative capital structure and minimal forward commitment.

I'll now turn the call over to Aaron to briefly review our results for the quarter, along with our guidance for Q3.

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Aaron A. Dahlke, Aircastle Limited - CFO [3]

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Thanks, Mike. As Mike mentioned, Aircastle had a solid second quarter with quality core earnings. For the quarter, total revenues were $223.4 million, up 9.4% versus Q2 2018 mostly due to higher lease rental and maintenance revenue. These rental and finance lease revenues were $201.1 million, up 7.4% versus Q2 last year primarily reflecting the partial period impact of 23 aircraft purchased in 2019 and the full period impact of 33 aircraft purchased since April 1, 2018.

We recorded maintenance revenue of $26.6 million associated with 11 aircraft transitions. Of this, $17.6 million was associated with 7 aircraft that we repossessed from Jet Airways and more than offset a $7.4 million transactional impairment we incurred on these aircraft. We closed no aircraft sales during the quarter, which lowered our second quarter diluted EPS by $0.05. Had these sales closed in the second quarter, as originally expected, adjusted diluted EPS would have been $0.53, in line with the midpoint of the guidance we provided on last quarter's call and the consensus EPS estimate for the second quarter of $0.52. Driven by the timing of these sales, you'll notice that we are guiding to a gain on sale range of $9 million to $15 million for Q3.

Total expenses increased by $33.2 million or 22% versus Q2 '18 due to higher depreciation driven by aircraft acquisitions, higher interest expense due to higher debt balances and higher maintenance expenses related to the transitioning of the Avianca Brazil and Jet Aircraft. As previously indicated, we also had a transactional impairment with Jet, which was more than fully offset by the maintenance revenue we recognized for a net positive impact of $10 million. We also completed our annual fleet review during the quarter with no impairments.

Net income was $31.1 million or $0.41 per diluted share. Adjusted EBITDA was $211 million, an increase of $18.3 million or 9.5% versus Q2 '18. We estimate the impact of timing associated with the transition of the aircraft that we repossessed from Avianca Brazil and Jet Airways will increase lease rental revenue by $8.3 million in the third quarter, which is reflected in our third quarter revenue guidance. For the second quarter of 2019, our portfolio lease rental yield was 10.7%, and our cash net interest margin was 7.4%. Pro forma adjusted for the $8.3 million impact of Avianca Brazil and Jet, the second quarter yield was 11.1% and the margin, 7.8%. This is directionally in line with what we told you to expect in our first quarter earnings conference call. We continue to expect that net cash interest margin will recover in the second half of the year to around 8% by year-end due to the revenue impact of transitioning the aircraft that we repossessed from Avianca Brazil and Jet Airways and the recent aircraft acquisitions.

Turning to our capital structure. We raised more than $1.1 billion of debt during the second quarter. We issued our second investment-grade senior unsecured notes for $650 million with a coupon of 4.25%. The transaction was significantly oversubscribed and was upsized from $500 million targeted at launch. The annual expense savings from the $500 million of 6.25% coupon note we repaid in mid-July is $10 million or $0.13 per diluted share. As an investment-grade issuer, we have ample access to liquidity at attractive levels. We also raised an additional $480 million of secured bank debt at a weighted average blended fixed rate of 3.45%. The current average interest rate on our fixed rate debt is 3.98% versus 4.46% at year-end 2018.

Lastly, during the quarter, we increased the size of one of our unsecured revolving credit facilities to $300 million from $280 million, bringing the total unsecured revolving credit facilities capacity to $1.1 billion. Our net debt-to-equity ratio was 2.5x. Total borrowings were $5.5 billion, and 78% of our debt is unsecured. Our weighted average debt was 3.6 years and weighted average coupon is 4.8%.

We ended the quarter with $500 million of unrestricted cash and $1.1 billion of unused revolving credit capacity. On August 2, our Board approved a $0.30 per common share dividend payable on September 16 to shareholders of record on August 30. As Mike indicated, through August 2, we repurchased $12 million of our shares at a weighted average cost of $18.29 per share. This is $0.32 below our book value per share of $26.96 at quarter end and about 9% lower than our average closing share price during the first half of $20.06.

Through the first 6 months of 2019, including dividends and share repurchases, we returned over $56 million of capital to our investors. During the second quarter, the Board reauthorized 100 million share repurchase program. We have 97 million remaining under this current repurchase authorization, which we will continue to use opportunistically. We've provided our usual guidance elements for the third quarter of 2019. Our guidance reflects sequentially higher rental revenue, reflecting recent aircraft acquisitions net of aircraft sale, the full quarter revenue generation from Avianca Brazil and Jet Airways aircraft that we have now transitioned. Guidance also includes gain on sale which slipped from the second quarter into Q3, along with a few additional planned sales.

To summarize, Aircastle had a strong second quarter. Our asset management skill enabled us to minimize downtime and develop good momentum for profitable growth in 2019. We have a strong balance sheet. And as Mike emphasized, we remain committed to allocating capital for maximum benefit to our investors.

With that, operator, we can now open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Jamie Baker with JPMorgan. Please go ahead.

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Mark Stephen Streeter, JP Morgan Chase & Co, Research Division - MD [2]

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Actually, it's Mark Streeter with Jamie as well. Just a question on, well, a couple of things. First off, your sweet spot is 737NGs, A320ceo, I was just wondering if you can comment a little bit about for the acquisition pipeline, how difficult it is to source those given the engine delays and the MAX situation? Any impact at all on your business model from what's going on with the single-aisle market right now?

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Michael J. Inglese, Aircastle Limited - CEO & Director [3]

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I don't know that it's dramatically changed the market environment and our investment target environment for us. Frankly, it's a competitive market. It has been for quite some time, and that dynamic hasn't changed for the better or for worse throughout this year. The MAX, NEO issues, as I've said in the prepared remarks, maybe have created some modest benefits in terms of customers looking to extend who might not otherwise have if their planes were delivered on time. But so far, I don't see a significant impact for us in what we've actually been dealing with versus what we've seen recently or what we expect to see in the near term.

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Mark Stephen Streeter, JP Morgan Chase & Co, Research Division - MD [4]

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And then how are you thinking about just credit quality in the portfolio amongst your lessee? South African comes to mind. Are you -- how is your watch list look at this point? What sort of -- everyone always has the next shoe to fall. What's sort of your next shoe to fall? And how are you trying to manage those risks?

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Michael J. Inglese, Aircastle Limited - CEO & Director [5]

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Well, look, we see our portfolio quite frankly in -- overall in better shape, and I think, a higher credit quality than it was 24 or 48 months ago. There's certainly a few customers who -- South Africa has been a customer of ours since 2009, 2010 time frame. They're dealing with their challenges as an economy, as a country and as an airline. Our 4 A330s that fly there have been a core part of their fleet. And so we are in discussions with them and keeping an eye on the situation, and frankly, looking to find ways to extend our existing assets with the airline going forward.

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Mark Stephen Streeter, JP Morgan Chase & Co, Research Division - MD [6]

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Okay, great. And just a final one, Mike, either for you or for Aaron. Just -- you pivoted a little bit on the funding side with the secured bank debt in the quarter. Just sort of wondering about the rationale there. Was it simply just cost savings and trying to keep diversified funding in place? It's -- you've been such a primary sort of unsecured funding, it was a significant amount of secured debt that you did raise.

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Michael J. Inglese, Aircastle Limited - CEO & Director [7]

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Yes. Look, it's really about managing overall funding cost, managing funding sources and not -- you can't go sort of 100% in any one direction for any extended period of time in the world and in the marketplace in which we compete. So it was just looking at some of the assets we had and trying to balance the overall funding mix between secured, unsecured and the benefits in terms of simple cost realities of secured financing.

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Operator [8]

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Our next question is from Scott Valentin with Compass Point Research.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [9]

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Just with regard to the $1.2 billion, I guess, in contracted acquisitions, is there room for upside there? Do you anticipate continuing to be active in the secondary market?

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Michael J. Inglese, Aircastle Limited - CEO & Director [10]

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Yes. Look, there's always room for upside. Sitting where we are today in the first week of August. I would expect to be able to find some things in the next 4 months of the year, whether, in fact, I do and to what extent I do, I don't have anything concrete today. But historically, we've been able to find fourth quarter deals from people who are looking to get things done by year-end, but I'm not planning on it. But I will be continuing to keep our pipeline wide and look for opportunities as we move throughout the year.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [11]

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Okay. And then just -- you mentioned the competitive environments, no significant changes. But we've heard that the margins, maybe a little less competition coming from China. I don't know if that plays into your opportunity set maybe in the back half of the year if things remain challenged in China.

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Michael J. Inglese, Aircastle Limited - CEO & Director [12]

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Look, it's -- what's going on in China and what's happening with a few different leasing companies are not all -- the macro picture is certainly a lot more volatile. What that means, it remains to be seen. Overall, it hasn't impacted us specifically. We have very limited China exposure at this point in time. And CMIG selling some portfolio assets, iTbc selling some portfolio assets. And in the former case, effectively getting out of this business. But I would emphasize, it wasn't because of their aircraft portfolio that they were looking to sell aviation assets, it was because of other issues in their overall investment business. And iTbc is just, I think, naturally looking to sort of manage and to turn capital in the context of being a big leasing company with an order book. You have to sell assets eventually, and I think it was a natural time for them to do it. And it appears that they've sold somewhere in the neighborhood of 40 aircraft to a number of different players in the space. So the China dynamic, I don't think has materialized for us in the context of what we're seeing in the competitive dynamic or the marketplace at this point in time.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [13]

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Okay. And then one final question. Aaron, I think you mentioned maintenance and other costs this quarter were a little bit elevated because of the transitions. So I assume those should come down in the third quarter. I don't think you guys provided guidance metric for maintenance and other expenses. But just the trend should be...

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Aaron A. Dahlke, Aircastle Limited - CFO [14]

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We typically don't guide on that. But you're right, the bulk of that cost and the transitions are already done.

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Operator [15]

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(Operator Instructions) And our next question is with Koosh Patel with Deutsche Bank.

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Koosh Rohit Patel, Deutsche Bank AG, Research Division - Research Associate [16]

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How does the composition of your portfolio change following the 17 aircraft transitions from Avianca Brazil and Jet, is the shift -- is this somewhat a shift in the business model? Or how do you think about asset concentration with, one, particular customer; or two, particular geography following your experience with Avianca Brazil and Jet, does that change how you think about that at all?

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Michael J. Inglese, Aircastle Limited - CEO & Director [17]

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Not really. We've always managed our business with a set of portfolio guardrails, as we call them, in the context of customer concentration, geographic concentration, lease expiries, asset types, et cetera. And so in the instance in Brazil, look, our biggest customer had a problem. We took our planes, and we brought them someplace else. And now they're at a better credit and they'll be flying for a long time in the same region with a better customer. And in the context of Jet in India, it's the same dynamic. We have expanded our relationship in the last couple of years with IndiGo, who's the most profitable and significant player in India. And in the context of Jet, we had a handful of aircraft that had some near-term expiries that they didn't quite make it to, but the composition of the country exposure there will change in time as we look at the lease expiry profile of the assets flying in India today.

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Koosh Rohit Patel, Deutsche Bank AG, Research Division - Research Associate [18]

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Understood. And then also just wanted to get an update on your E2 order book and what you're seeing on the demand side there?

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Michael J. Inglese, Aircastle Limited - CEO & Director [19]

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So on the E2s, I would say, we've seen increased activity and conversations. As I think John Slattery was -- has been talking about out publicly over the course of the last few months, I think we're all expecting and starting to think that the benefits of the Boeing joint venture there will bring some additional focus. It's certainly a competitive space. Airbus has made great progress in early days with their A220 play. I don't have anything more concrete to report today despite our intentions when we -- we're thinking about the world 6 months ago, but we have 3 or 4 active campaigns, and we hope to make some significant progress over the balance of 2019 on the E2 placement.

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Operator [20]

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Our next question is from Moshe Orenbuch with Credit Suisse.

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Moshe Ari Orenbuch, Crédit Suisse AG, Research Division - MD and Equity Research Analyst [21]

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I was hoping, Aaron, maybe you could talk a little bit about when you said the margin would get back to historic levels. You talked about some things that you've actually already done pretty much on the debt side. Can you talk about like what the impact that will have? And then perhaps what might be going on in the yield side in that discussion.

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Aaron A. Dahlke, Aircastle Limited - CFO [22]

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Sure. I think that most of the impact's really related to the revenue yield. And getting the aircraft back from Avianca Brazil and Jet Airways back on the surface quickly is going to help bring the yield back up, and that's going to be the biggest driver there. Obviously, on the debt side, driving down the rates is helping us, but the biggest impact right now is the revenue yield side.

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Moshe Ari Orenbuch, Crédit Suisse AG, Research Division - MD and Equity Research Analyst [23]

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Got you. And anything else that you would kind of like call out in terms of trends with respect to revenue on the remainder of the portfolio kind of over the next several quarters?

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Aaron A. Dahlke, Aircastle Limited - CFO [24]

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I mean with the asset acquisitions that we have coming online, which is reflected in our guidance for the Q3, I think that'll continue to be kind of in that trend line. Most of the acquisitions that we have in play are coming at in the third quarter and then on the disposition side, which we also forecast. As you noticed most of the acquisitions this year are kind of weighted on the back end. So that's also reflected in the guidance. So I think that, overall, you're going to see kind of a steady state over Q3 to Q4.

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Operator [25]

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Our next question is from Catherine O'Brien with Goldman Sachs.

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Catherine Maureen O'Brien, Goldman Sachs Group Inc., Research Division - Equity Analyst [26]

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So Mike you already alluded to this a little bit earlier in the call, but it sounds like as of right now, the mix of the sellers that you're acquiring aircraft from is primarily weighted towards other lessors with few airlines starting there. Can you just talk about how that's changed maybe over the past 6 to 12 months? And then kind of a follow-up to an earlier question. It sounds like a couple of your peers are noting a little bit of increased discipline in the sale leaseback market. Is that something you might be interested going forward?

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Michael J. Inglese, Aircastle Limited - CEO & Director [27]

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Yes. So we look at the last few years, and our mix varies year-to-year, but I would say, in '17 and '18, our acquisitions were probably 2/3, 1/3, 2/3 being bought from other lessors and 1/3 sale leasebacks with airlines. And of the $1.2 billion, it's about the same mix that we're looking at today, about 2/3, 1/3. So we are -- and we continue to look at sale leaseback opportunities. It feels like maybe it's bottomed out. I'm not sure I declare it getting all that much better just yet. But we continue to look for opportunities to do stuff in the sale leaseback market. In recent history, it's been a mix of both A320neos at IndiGo and some current technology with other airlines and what that mix in the sale leaseback market will produce remains to be seen. But we're looking at both NEOs and existing CEOs and NGs in the context of sale leasebacks with airlines as well.

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Catherine Maureen O'Brien, Goldman Sachs Group Inc., Research Division - Equity Analyst [28]

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Okay. Great. And then I think last quarter, I believe you noted that while you didn't have an exact target for aircraft sales, you thought proceeds from sales this year might be somewhere between what the company did in 2017 and 2018. Is that still about where you're at now? Just some of those more back half weighted. Or any thoughts given maybe increase to some end.

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Michael J. Inglese, Aircastle Limited - CEO & Director [29]

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No, I would say, overall magnitude is probably similar. It will be somewhere between what we did in the last few years with gains probably in the same neighborhood, maybe a little better, but that all remains to be seen. And obviously, given where we are in the first half, a fair bit of that will be second half weighted based on the transactions and conversations we're having today.

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Operator [30]

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Our next question is from Kristine Liwag with Bank of America Merrill Lynch.

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Kristine Tan Liwag, BofA Merrill Lynch, Research Division - VP [31]

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When you look at your customer exposure today, what would you say makes up a good credit versus bad credit or ugly credit in your portfolio? And then where was that a year ago? And do you have a target proportion in mind?

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Michael J. Inglese, Aircastle Limited - CEO & Director [32]

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I would never use the term ugly to talk about my customers. But look, I think our overall portfolio of credit quality rating is probably higher today than it was 12 or 24 months ago. And let's be honest, some of my less desirable credits died along the way. So with that factor as well as some of the transactions we've done with higher credit airlines in terms of lease placements as well as new acquisitions have improved the overall quality of the portfolio. And yes, we have guidelines as we think about our portfolio of guardrails around different credit ratings on our own system here of airline credits. How much we would consider doing with any particular credit and limits on that and limits on credit buckets in aggregate. So we continue to employ those credit metrics and guardrails. And as I said, our assessment is that the overall portfolio quality is better today than it has been.

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Kristine Tan Liwag, BofA Merrill Lynch, Research Division - VP [33]

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When you look at your shift to higher credit customers, I mean, this usually has an effect on portfolio yield, right? So when you mentioned in your prepared remarks, and I just want to make sure I heard this right, if you adjust out for Jet and adjust out for Avianca Brazil, portfolio yield was 11.1% and last year it was 11.5%. Should we think about this shift towards higher credit customers, the cost of that is something like 50 basis points in yield? Is that a fair way to look at it? If not, how would you suggest we look at that?

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Michael J. Inglese, Aircastle Limited - CEO & Director [34]

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Look, I think it's reasonable to think that better credits are going to put pressure on top line yield, and so I don't know if 50 basis points is the exact number. But directionally, it's probably not an unreasonable way to think about better credits may have lower yield, but we think it's the right trade-off in the context of the overall management of the business.

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Kristine Tan Liwag, BofA Merrill Lynch, Research Division - VP [35]

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And where would you say you are today in this journey? Are you at the proportion that you like in terms of your credit exposure? Or will you continue to migrate towards higher credit customers, and therefore, continue to see more pressure on your yield?

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Michael J. Inglese, Aircastle Limited - CEO & Director [36]

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Look, I think -- look, yield pressure is not just the customer rating, it's market dynamics and what happens overall in the marketplace also. But I think in terms of our mix of customers, I'm not on a journey to just have the highest credit portfolio in the world. It's going to take a mix across the entire portfolio, especially as someone who specializes in the secondary market to make sure overall, we produce the kind of returns that our investors expect.

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Kristine Tan Liwag, BofA Merrill Lynch, Research Division - VP [37]

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That's really helpful. And if I could squeeze one more. When I look at Jet, could you discuss your total net effect of that transaction in terms of the deposits that you received, the maintenance reserves that you have and then your transition costs and impairments. So what's the net effect of that transaction for you? Was that a net positive, net negative? Any guidance you could provide there would be helpful.

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Aaron A. Dahlke, Aircastle Limited - CFO [38]

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Kristine, it's Aaron. Like I said in my prepared remarks, the net impact to us was positive about $10 million.

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Operator [39]

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(Operator Instructions) And there are no further questions in the queue.

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Frank C. Constantinople, Aircastle Limited - SVP, IR [40]

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Okay. Thank you very much for your time today. Feel free to reach out if you have any additional questions. We look forward to talking to you soon. Bye now.

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Operator [41]

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This concludes today's call. Thank you for your participation. You may now disconnect.