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Edited Transcript of FLY earnings conference call or presentation 8-May-20 1:00pm GMT

Q1 2020 FLY Leasing Ltd Earnings Call

DUBLIN May 27, 2020 (Thomson StreetEvents) -- Edited Transcript of FLY Leasing Ltd earnings conference call or presentation Friday, May 8, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Colm Barrington

Fly Leasing Limited - CEO & Director

* Julie G. Ruehl

Fly Leasing Limited - CFO

* Matt Dallas

Fly Leasing Limited - Investor Contact

* Steven Zissis

BBAM US LP - CEO and President

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Conference Call Participants

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* Catherine Maureen O'Brien

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Douglas William Runte

Deutsche Bank AG, Research Division - MD and Head of Aircraft Debt Research

* Helane R. Becker

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Jamie Nathaniel Baker

JP Morgan Chase & Co, Research Division - U.S. Airline and Aircraft Leasing Equity Analyst

* Koosh Rohit Patel

Deutsche Bank AG, Research Division - Research Associate

* William McGoldrick Mastoris

Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Fly Leasing First Quarter 2020 Earnings Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Matt Dallas. Sir, the floor is yours.

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Matt Dallas, Fly Leasing Limited - Investor Contact [2]

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Thank you, and good morning. This is Matt Dallas, the Investor Relations Manager at Fly Leasing. And I'd like to welcome everyone to our first quarter 2020 earnings conference call. Fly Leasing, which we will refer to as FLY or the company, issued its first quarter earnings results press release earlier today, which is posted on the company's website at flyleasing.com. We have a slide presentation that accompanies today's call, which is available to participants on the webcast. If you are not accessing the webcast, you can find a copy of today's presentation in the Investor Relations section of our website on the Events and Presentations page.

Representing the company today on this call will be Colm Barrington, our Chief Executive Officer; Julie Ruehl, our Chief Financial Officer; and Steve Zissis, the President and CEO of BBAM, the company that manages and services FLY's fleet.

This conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements regarding the outlook for the company's future business and financial performance. Forward-looking statements are based on the current expectations and assumptions of FLY's management, which are subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to factors that are summarized in the earnings press release and are described more fully in the company's filings with the SEC. Please refer to these sources for additional information. An archived webcast of this call will be available for 1 year on the company's website.

And with that, I'd now like to hand the call over to Colm Barrington, CEO of FLY Leasing. Colm?

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Colm Barrington, Fly Leasing Limited - CEO & Director [3]

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Thank you, Matt, and welcome, everyone, and thank you all for joining us this morning. This is certainly an unprecedented time in global aviation. The COVID-19-related lockdowns, travel restrictions, consumer fears have resulted in airline passenger traffic falling to a trickle and airline operations being severely reduced. As airlines report the traffic statistics for April, we've begun to see the result of this in terms of passenger numbers. Several major airlines already reporting passenger traffic at less than 2% of the levels they carried in April 2019.

After several excellent years for aviation, leading up to and through 2019, we are now facing an unprecedented time in 2020 and likely beyond. Once again, it is a world event not directly related to aviation that has caused the virtual cessation of airline operations, the grounding of most of the global aircraft fleet, redundancies and layoffs of thousands of airline employees and hemorrhaging of airline liquidity. What started out as looking like another very positive year for global aviation now looks like a real struggle for the industry and for all its participants, including airlines, lessors and manufacturers. And despite airlines making strong efforts to shore up their liquidity, it's likely that many won't be able to do so on their own.

The positive news is that many governments are aware of the gravity of the situation and of the importance of aviation to national and global economic recovery, and as a result, are providing significant financial assistance to airlines. Hopefully, this assistance will be enough to allow many airlines to survive the current crisis and be able to ramp up their operations when travel restrictions are lifted and consumer interest returns.

The recent loosening of restrictions on movement in some jurisdictions and the responses of the populations to their restored freedoms provide some hope that, once the virus has abated or a vaccine or other effective treatment has been developed, we will see a return towards previous travel patterns. We will be watching these trends intently.

We obviously have great concerns and sympathy for the thousands of people who have already lost their jobs amongst our airline clients and for those who have contracted the virus. All our colleagues at FLY and BBAM are well and have adapted to the requirement to work remotely. One of the features of our business is many of us are conditioned to working away from an office environment. The restrictions on travel are certainly a challenge to us.

Though FLY has reported another quarter of excellent financial results, these are overshadowed by the importance of managing through the effects of the virus. Fortunately, FLY's business model was designed to withstand industry downturns and to provide a high level of protection through various cycles. While it's impossible to protect fully against the lockdown that we're experiencing today, we believe that our strategy, which we have applied consistently, gives us a level of protection and confidence that FLY will survive the current crisis situation.

First, our strategy has been based on concentrating our portfolio on the most widely used aircraft types, primarily popular narrow-bodies. We expect that the demand for relatively new midlife A320s and 737 next-generation aircraft, which are one of the core of FLY's fleet, be the first to recover, as these aircraft satisfy domestic and regional airline operations. The demand for these aircraft will likely be strengthened by lower fuel prices.

Secondly, FLY has consistently eschewed making speculative aircraft orders from the manufacturers on the basis we couldn't predict the demand and lease terms for aircraft, which will be delivered several years out, or the financing environment at the time of delivery. FLY has no aircraft orders from the manufacturers. Our future capital commitments have always been selective and have generally been made in conjunction with our airline customers through purchase and leaseback transactions. While it is unfortunate that current conditions resulted in the suspension of our purchase and leaseback transaction for A320neos, it doesn't mean that FLY has no capital commitments in 2020.

And thirdly, FLY has always adopted a conservative financing strategy based primarily on long-dated debt that amortizes broadly in line with depreciation of our aircraft. As a result, we have no significant debt or refinancing until the fourth quarter of 2021.

FLY is also fortunate to benefit from the experience of the BBAM team, which has more than 30 years' experience and has managed aviation assets through several industry crises. BBAM is a full-service global lease manager with strong and positive relationships with most of the world's airlines and financing institutions. BBAM is a very strong partner to help FLY navigate through the present situation.

The BBAM team is actively managing our portfolio with an emphasis on enhancing liquidity and protecting asset value. Like most lessors, we have already received rent deferral requests from most of our lessees. We expect to grant rent deferrals to lessees representing about 70% of annualized contracted rents. While we are still in discussion with many of our 40 lessees, we expect the outcome to provide for a deferral period of less than 4 months and for deferred amounts to be repaid over approximately 7 months. Julie will explain the GAAP implications of the deferrals later in the call.

I would like to emphasize that there is a strong alignment of interest between FLY and BBAM in completing these arrangements. BBAM is obliged under the terms of its servicing and management agreements with FLY to treat each of its clients without preference. In addition, BBAM shareholders now own 23% of FLY's shares, which is the largest insider holding of any public aircraft lessor.

Our strategy has placed us in a strong position to protect FLY from the present challenges. At the end of March, FLY had cash and unencumbered assets of approximately $900 million, including unrestricted cash of $361 million and unencumbered aircraft of $560 million. To put these amounts into perspective, in the March quarter, FLY's annualized operating lease rental revenue was about $325 million And our interest and scheduled debt amortization for the next 12 months totaled about $250 million. So adequate cash. At quarter end, our financial leverage was an all-time low 2.1x net debt to equity. Our debt has an average term of 4.5 years with no near-term refinancing needs. As mentioned earlier, we have no orders from the aircraft manufacturers. There's no predelivery payments tied up with them. And as history has shown, we have proven the financing flexibility with strong track record of diversified financing sources.

Since completing our major portfolio acquisition in late 2018, we've been purposely strengthening FLY's balance sheet, specifically by adding to our cash and unencumbered assets by reducing our financial leverage. This has been achieved principally through our aggressive sales program and has had the added advantage of reducing lessee concentration. From March 2019 to March 2020, we increased our unrestricted cash and unencumbered aircraft by more than 40% from $651 million to $921 million. And over the same period, we reduced our net debt to equity from 3.4x to 2.1x, the lowest level in the company's history.

FLY is reporting another very good quarter of financial results. Julie will take you through the detailed financials later in the call, but here are some headlines from the quarter.

Our total revenues were $122 million, a little behind last year's Q1 and mainly as a result of our smaller fleet, which comprised 84 aircraft valued at $3.0 billion this year, as compared to 103 aircraft valued at $3.5 billion at March 31, 2019.

Our adjusted net income of $44 million corresponded to $1.42 per share, similar to last year's $1.44 per share. We made a gain of $31.7 million for the sale of 6 aircraft and 2 engines.

We had an adjusted return on equity of 20%, our eighth consecutive quarter of double-digit ROEs. We increased our book value per share to $29.21, an increase of $6.47 or 28% in the 12 months since March 2019.

Our results in the quarter continue to reflect the significant developments in FLY over the last 3 years, selling older and less-performing aircraft, optimizing our capital structure, and most importantly, upgrading our fleet with newer and more profitable aircraft. These initiatives will hold us in good stead as we weather these challenging times.

In the quarter, FLY sold 6 aircraft and 2 engines with total gain of $31.7 million, which represents a 20% premium to the book value of the assets sold. The average age of the assets was over 10 years, and the engines have been previously attached to an Airbus A319 that FLY sold for part-out in the previous quarter.

In the quarter, FLY acquired 1 Boeing 737 Next-Generation. And in quarter 2, we've completed the acquisition of 2 more 737 NGs, pursuant to contracts that we entered into last year. Meanwhile, and as widely reported in the industry media, AirAsia has announced that it will not be taking any more A320neo deliveries this year. And so our proposed purchase and leaseback transaction has been deferred, at least beyond 2020. As of now, we do not know if or when deliveries to AirAsia will resume as we remain in constant communication with the airline. We have no further commitments to purchase aircraft.

With that, I'll hand you over to Julie to take you through the Q1 financial results in detail. Julie?

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Julie G. Ruehl, Fly Leasing Limited - CFO [4]

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Thank you, Colm. FLY is reporting net income of $38.1 million or $1.24 per share for Q1 2020. ROE was 17.2%, marking the eighth consecutive quarter of double-digit ROE. We are pleased with these solid financial results, which include a gain on the sale of 6 aircraft and 2 engines at a significant premium to book value. We continue to believe the quality of earnings was strong, as demonstrated by FLY's increased net spread.

On the revenue side, FLY's operating lease rental revenue in Q1 2020 decreased to $85.5 million, driven by the sale of 41 aircraft since the beginning of 2019. As Colm mentioned, due to the COVID-19 crisis, we expect to grant some rent deferrals. However, we really didn't see any impact in Q1. We expect the vast majority of rent deferrals to conclude within this year and expect to agree to approximately $90 million to $95 million of rent deferrals in the second through fourth quarters. However, we generally do not expect these rent deferrals to reduce reported lease revenue, provided collection of rents continues to be reasonably assured. This is because under GAAP total rents over the term of the lease are recognized on a straight-line basis. Accordingly, changes to the timing of cash rent receipts, such as under deferral arrangements, will not affect the total amount of consideration to be received under the lease and therefore do not typically impact revenue recognition.

Total revenues were $121.6 million in Q1 2020. FLY recognized $2.4 million of end of lease income related to 2 scheduled lease expirations. FLY recognized $31.7 million of gains on the sale of aircraft, which represents a 20% premium to net book value. Aircraft sales over the past 5 quarters enabled deleveraging and reduced lessee concentration and also built up FLY's cash balance, all of which puts us in a stronger position today than any time in our history.

Turning to expenses. Q1 depreciation and interest expense both decreased as compared to the prior year quarter due to aircraft sales. In addition to the lower debt levels due primarily to aircraft sales, interest expense also declined as a result of a lower weighted average cost of debt.

SG&A expense is down $1 million in Q1 as compared to Q1 2019 due to the smaller fleet. Also, in Q1 2020, FLY recognized an unrealized loss of $9.4 million to write marketable securities down to estimated fair value. This expense item relates to FLY's investment in the equity tranche of aviation ABS vehicles, commonly referred to as E-notes. Following this write-down, FLY's investment in E-notes is $6.6 million as of March 31. These securities are required to be marked to fair value each quarter, which may result in future income statement volatility. There were no aircraft impairment charges in Q1, and I will go into more detail about that now.

First, a reminder that under GAAP the undiscounted cash flows of an asset over its expected life are compared to its net book value to determine if the asset is impaired. We expanded our impairment analysis this quarter and reviewed estimated cash flows for over 90% of our fleet. Our analysis resulted in no impairment charges this quarter. We will continue to monitor for changes in circumstances, principally changes to estimated cash flow streams that may be indicators of potential impairment.

We are highly focused on liquidity during these uncertain times. Our current unrestricted cash balance is sound, and as Colm stated earlier, we have no near-term debt maturities. 2020 debt maturities are minimal, and there are no significant balloon payments due until the end of 2021. We have also reduced our cost of debt with our active liability management efforts and continue -- and consider our refinancing risk to be mitigated due to the level of secured debt that we have, which is amortizing.

I'd like to conclude with a quick note regarding our expectations for next quarter's financial results, which we have typically provided on our quarterly calls. While we believe many of our income statement line items remain largely predictable, we believe it is prudent to not provide any Q2 guidance at this time given the rapidly evolving nature of the COVID-19 crisis.

I'll turn it back to Colm now for his closing remarks.

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Colm Barrington, Fly Leasing Limited - CEO & Director [5]

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Thank you, Julie. So in summary, FLY has many defenses as we face the current difficult industry conditions. We have ample liquidity and unencumbered assets and have long-dated financing with no near-term refinancing requirements, nor have we near-term capital expenditure requirements and no commitments to aircraft manufacturers. We have modern fleet of predominantly narrow-body aircraft on lease to a diversified group of airlines worldwide, for which 50% of our rental revenues are represented by flag carriers and U.S. major airlines.

And finally, we benefit from the world-leading and experienced management provided by the BBAM team, which has navigated through several global crises, which can call on numerous industry contacts as required. While we will have to face rough waters for the coming months, FLY has a strong armory of protections to help us navigate through them.

And now we can take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question will come from the line of Ms. Catherine O'Brien from Goldman Sachs.

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Catherine Maureen O'Brien, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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I hope you and your family are all doing well. Maybe a first one just on the deferral commentary. I think you said it impacts lessors that generate 70% of your revenue. But most of the industry that we've heard from so far, it's not -- the deferrals are not equal to 100% of rent. It's usually some portion of monthly rents. So can you help us frame what percentage of revenue right now is potentially impacted, understanding it's a cash flow impact, not really a P&L impact, as of yet?

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Colm Barrington, Fly Leasing Limited - CEO & Director [3]

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I think Julie gave some commentary on that. Julie, do you want to just respond to Catherine on that one?

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Julie G. Ruehl, Fly Leasing Limited - CFO [4]

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Yes. Thank you for the question. Yes, I think I said in my comments that we expect $90 million to $95 million of deferrals this year. And keep in mind that some of these discussions are ongoing and in process. So these are our estimates at this time. But then if you compare that to the $325 million of annualized operating lease revenue that Colm mentioned, we're in the 30% to 35% range of contracted rents that we are expecting to grant some deferrals on.

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Catherine Maureen O'Brien, Goldman Sachs Group Inc., Research Division - Equity Analyst [5]

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Okay. Understood. Apologies. I was getting some weird feedbacks. I must have missed that. Just maybe a follow-up on the deferrals, and then I have one more. Are you at the point where any of your lessors have -- or excuse me, lessees have started to repay normal rates, maybe some airlines out of Asia that the deferral started a couple of months ago? Just trying to get a sense of where you are in the cycle, where you maybe expect -- where your current expectation on collections will bottom and then -- yes, that's it for now.

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Colm Barrington, Fly Leasing Limited - CEO & Director [6]

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I think, Steve, you might like to respond to that one.

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Steven Zissis, BBAM US LP - CEO and President [7]

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Sure. Catherine, we had a handful of airlines in Asia that came early in the crisis asking for deferrals. But at the end of the day, they decided they didn't need them and therefore paid on schedule. And I will add that, post the crisis, in fact, we've extended 2 aircraft at decent lease rates for 6 years. So it's not all bad news. It's more of a mixed bag of activity out there.

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Catherine Maureen O'Brien, Goldman Sachs Group Inc., Research Division - Equity Analyst [8]

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Okay. Got it. And then maybe just on the AirAsia aircraft. I understand that TBD on one of those deliveries will restart. But just maybe 2 questions on that. First, there's no penalty to FLY for those deferrals, right? That would be AirAsia's negotiations with Airbus? And then maybe a second question. I think it's been in the press that BBAM has done -- potentially done a sale-leaseback transaction. Was Delta an aircraft in its current fleet? Will FLY be participating? Or do you expect FLY to potentially see any incremental aircraft adds via the sale-leaseback market this year?

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Colm Barrington, Fly Leasing Limited - CEO & Director [9]

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Steve, do you want to take that one also?

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Steven Zissis, BBAM US LP - CEO and President [10]

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Sure. So with respect to AirAsia, as you know, they've made a statement that they will not be taking their neos until growth returns. And all of our transactions are derived directly through AirAsia, not directly with Airbus. So those are sale-leaseback transactions. As Colm had mentioned in his prepared remarks, we are not taking any sale-leasebacks this year, and we stand by here while we consider the transaction in '22 and '23 and beyond. So that's an evolving schedule now, and we'll work with AirAsia on that as it develops.

With respect to the transaction with one of our major clients in North America, BBAM, and not FLY, BBAM did transact a very large transaction early in the crisis to assist one of our clients. That's -- one of the beauties of the platform is that we can access very large deals. And as we see opportunities with our capital partners, we can allocate those deals. We did not allocate any of those deals to FLY, not because we didn't have the capital or we didn't want to grow, we certainly do want to do that, but we thought it was just too early in the crisis for a public entity to be spending its capital until we could see what this recovery looks like. So as opportunities come along and we can use the strength of the BBAM platform, you can expect to see FLY participate in some of those deals.

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Catherine Maureen O'Brien, Goldman Sachs Group Inc., Research Division - Equity Analyst [11]

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Okay. That makes lot of sense. I appreciate that. And if I can just sneak -- I just want to make sure -- like, there's 0 recourse to FLY for AirAsia's decision to push those deliveries out. That's an area AirAsia and Airbus discussion, right?

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Steven Zissis, BBAM US LP - CEO and President [12]

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Yes. That's a correct statement.

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Operator [13]

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(Operator Instructions) Your next question will come from the line of Mr. Koosh Patel from Deutsche Bank.

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Koosh Rohit Patel, Deutsche Bank AG, Research Division - Research Associate [14]

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I just had a couple of questions here as well. The first one is, I guess, what factors are you using in order to determine whether to grant lease deferrals and what level of deferrals to grant to some of your customers?

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Colm Barrington, Fly Leasing Limited - CEO & Director [15]

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Steve, do you want to go on that one, too?

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Steven Zissis, BBAM US LP - CEO and President [16]

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Yes. Koosh, you were a little faint there. Were you saying what levels of deferrals are the airlines asking for?

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Koosh Rohit Patel, Deutsche Bank AG, Research Division - Research Associate [17]

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Sorry. Let me just say that again. What factors are you using in order to determine whether to grant deferrals? And how do you guys kind of approach that process?

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Steven Zissis, BBAM US LP - CEO and President [18]

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Well, obviously, the big one is the viability of the airline going forward, right? So we pretty much used 3 metrics as we evaluated the situation: one is near-term liquidity, whether they had enough near-term liquidity to get to the end of the year; and then the second and third issues here that we evaluated was government support and shareholder support in the form of what levers they could pull in the event they needed more liquidity to get past the crisis. So those were the 3 key metrics. Obviously, there were other things that went into that evaluation such as near-term maturities, CapEx and, obviously, their fleet strategy.

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Koosh Rohit Patel, Deutsche Bank AG, Research Division - Research Associate [19]

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Got it. And then just as a follow-up, I know you do have an option book on some neos as well, which I don't think is associated with AirAsia making decisions. So could you just kind of walk us through the process on that and when you have to make some of those decisions?

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Steven Zissis, BBAM US LP - CEO and President [20]

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Yes. So as you will remember from prior calls, we have 20 options that we derived through AirAsia on future neos. Early on, 1.5 years ago, we exercised some of those options, but AirAsia did not have aircraft available to fulfill that agreement. So that part of the transaction is in suspension until we could figure out what aircraft are available and what future growth looks like. So there is no obligation on behalf of FLY or BBAM to pick up any option aircraft at this point.

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Operator [21]

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And your next question, presenters, will come from the line of Ms. Helane Becker from Cowen.

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Helane R. Becker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [22]

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I just have a couple of questions on -- I think Slide #19, so kind of later in the presentation. You have some aircraft out to Alaska Air. Are they 737s or A320s or A321s? And are they coming -- if they're the A320s, are they coming back to you?

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Colm Barrington, Fly Leasing Limited - CEO & Director [23]

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Steve?

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Steven Zissis, BBAM US LP - CEO and President [24]

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It's an A320, Helane. And I believe the expiry on that aircraft is 2023. So we don't have any near-term visibility on Alaska Airlines' desire to keep or give that aircraft back at this point.

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Helane R. Becker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [25]

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Okay. That's good to know, it's a longer-dated lease. And then the other question, I don't know if Colm or you want to answer this. But Air India is a big client for you. And obviously, those leases are guaranteed by the government. But just kind of wondering how you're thinking about your portfolio of lessees in this environment. I mean, is this an opportunity for you to upgrade your client list in some parts of the world and maybe shift exposure around from some places that might be more risky going forward to places that might be less risky, a? And b, do you have any concerns about those specific Air India aircraft?

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Colm Barrington, Fly Leasing Limited - CEO & Director [26]

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Steve, again, I think that's your area.

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Steven Zissis, BBAM US LP - CEO and President [27]

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Sure. Look, Helane, that's a really good question. So I think there's 2 observations I would make. One is the current fleet at FLY is about 60% of net book value in Asia. Asia went through the crisis earlier than anybody else. And we expect Asia to recover before anybody else. So in that respect, we think we'll get through this quicker than some of the other lessors, just given our exposure to Asia. The other observation I would make is that the animal instincts in commerce in Asia is probably stronger than other parts of the world. So as fear subsides, and as Colm mentioned, they get some antiviral or vaccine developed, we expect travel to bounce back a lot sooner in that part of the world. So in that respect, I think we're sitting pretty well.

With respect to your second part of the question, which is, do we see this as an opportunity to upgrade the quality of our fleet, that's absolutely true. We're seeing some of the best Tier 1 airlines try to access the sale-leaseback market to gain liquidity here. And we do see this as an opportunity as the crisis unfolds to improve the quality of our portfolio. So you could expect to see us play in some interesting names as opportunities come along.

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Helane R. Becker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [28]

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Got you. What are -- I don't know if you said this, but as you think about those opportunities to do sale-leasebacks, like what are you looking for? Are you -- I guess it would be younger aircraft than the average age of the current portfolio and a better yield than the portfolio? Or case by case?

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Steven Zissis, BBAM US LP - CEO and President [29]

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Yes. Look, it's -- well, first of all, it's having some view on how we think the airline will develop and its competitive position in the market going forward. With respect to specific deals, we are looking for younger aircraft with very long sale-leaseback terms. But having said that, we're not shy on doing some shorter-term deals as long as the risk/reward is warranted. And we do see quite a few opportunities coming up. But keep in mind that a lot of the major lessors, as they defer their order book, are probably going to enter into the sale-leaseback market till this shows some growth, so it may be somewhat more competitive than we all think.

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Helane R. Becker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [30]

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Got you. And then just my last question. On the 2021 notes, they're due in October. And I'm just kind of wondering how -- I mean, obviously, you don't have to worry about that for, whatever, 18 months. But how far in advance would you consider going into the market to refinance those or to push the maturity dates out? I mean, you've got -- I'm looking at Slide 15, and you actually have a pretty good repayment schedule for the next 5 years until you get to, like, '24 and '25. But next year, obviously, and it's to your point earlier, it's fourth quarter. So how early in '21 would you start to think about pushing those forward?

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Colm Barrington, Fly Leasing Limited - CEO & Director [31]

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Well, Helane, we've shown over the years that we've been pretty flexible in terms of our financing and refinancing. So we are looking at all options as of today, but the markets are pretty turbulent right now. So -- it's because of the virus. So I think we'll have to wait for a little while until things settle. But certainly, we will be looking at all options as of now right through the financing date -- refinancing date. So -- and I expect that we will do something between this and then.

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Helane R. Becker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [32]

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Right. Got you. Okay. Well, there's obviously no rush though.

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Operator [33]

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And presenters, your next question will come from the line of Jamie Baker from JPMorgan.

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Jamie Nathaniel Baker, JP Morgan Chase & Co, Research Division - U.S. Airline and Aircraft Leasing Equity Analyst [34]

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Can you hear me okay?

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Colm Barrington, Fly Leasing Limited - CEO & Director [35]

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Perfectly, Jamie.

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Jamie Nathaniel Baker, JP Morgan Chase & Co, Research Division - U.S. Airline and Aircraft Leasing Equity Analyst [36]

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Great. My first question probably won't come as a huge surprise. What are your thoughts on accepting equity in lieu of rents? And have any of your more challenged airline customers made any proposals in this regard?

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Colm Barrington, Fly Leasing Limited - CEO & Director [37]

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Steve, do you want to talk about that one?

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Steven Zissis, BBAM US LP - CEO and President [38]

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Yes. Well, Jamie, it's Steve. None of our current lessees have offered such a mechanism. Would we consider it? Unlikely. We are a lessor, and we want to stay pure as a lessor. But there may be circumstances where it would fall into the exception basket, and you probably are referring to the Norwegian deal and what that means for the marketplace. So I would say, in general, that's probably a nonstarter. But there are some interesting, I wouldn't say opportunities, but possibilities out there that we might change our mind on. So I think we stay open to it.

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Jamie Nathaniel Baker, JP Morgan Chase & Co, Research Division - U.S. Airline and Aircraft Leasing Equity Analyst [39]

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Okay. Just had to ask. And second, and this is a deferral question. Alaska disclosed that they've gotten up to 12 months of payment relief from some of their lessors. But what I'm hearing this earnings season is that 3- and occasionally 6-month reprieves are really all that's being given out. And of course, your disclosures this morning. I'm not asking you to name names. I'm just curious, I mean, is this evidence of the divide between better platforms like yours and weaker platforms? Or can you think of something structural that I haven't thought of? I haven't really been able to get any color out of Alaska on this. I was just somewhat puzzled and alarmed to see up to 12-month reprieve is being offered.

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Colm Barrington, Fly Leasing Limited - CEO & Director [40]

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Steve, do you want to comment on that one also?

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Steven Zissis, BBAM US LP - CEO and President [41]

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Sure, Jamie. Look, across the BBAM fleet, we have 525 aircraft and some 90 lessees. Of those 90 lessees, I'm going to say there were 3 that requested longer than 3-month deferrals, and all 3 of those have been denied. Look, I think all lessors are in a position where they want to help their clients get through the crisis. But we're not a long-term provider of liquidity, right? They need to fix their balance sheet, and then we have to assess their viability from there. So I think requests for that type of deferral is out of bounds.

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Operator [42]

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Presenters, your next question will come from the line of Mr. Doug Runte from Deutsche Bank.

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Douglas William Runte, Deutsche Bank AG, Research Division - MD and Head of Aircraft Debt Research [43]

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A couple of questions. Can you give us an idea of your uncommitted lease rules in 2020 and 2021?

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Colm Barrington, Fly Leasing Limited - CEO & Director [44]

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Sorry, Doug, can you repeat that? It was a bit [unclear].

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Douglas William Runte, Deutsche Bank AG, Research Division - MD and Head of Aircraft Debt Research [45]

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Your lease expirations in 2020 and 2021?

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Colm Barrington, Fly Leasing Limited - CEO & Director [46]

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Okay. I think that's showed in Slide 21 of our presentation.

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Douglas William Runte, Deutsche Bank AG, Research Division - MD and Head of Aircraft Debt Research [47]

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I apologize. I was having some technology problems here.

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Colm Barrington, Fly Leasing Limited - CEO & Director [48]

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Okay. We have 3 in '20, representing 3% of our fleet. And we have 14 in '21, representing 9%.

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Douglas William Runte, Deutsche Bank AG, Research Division - MD and Head of Aircraft Debt Research [49]

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Great. And you mentioned that 2 lease rentals had actually been renewed. Maybe it's too granular of a question, but can you give us an idea of what you may have gotten on those lease rental renewals versus what you might have expected a few months ago?

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Colm Barrington, Fly Leasing Limited - CEO & Director [50]

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Steve, do you want to give a comment on your expectations?

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Steven Zissis, BBAM US LP - CEO and President [51]

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Yes, yes. Look, like all of these extensions, the discussions predate the crisis, right? And both of the airlines that extended stood up to their word and did not renegotiate post the crisis, which we respect and appreciate because that's the way business should be conducted. And those lease rates renewals reflect pre the crisis. As we go into the crisis and lease rates softened, you can expect, I don't know, I'd say, 5% to 10% haircut as we navigate through this. But as I said in my earlier remarks, I do think, given that 60% of our fleet is in Asia, we think the rebound there is going to be a lot stronger than other parts of the world and that lease rates will firm there before they firm in other places.

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Douglas William Runte, Deutsche Bank AG, Research Division - MD and Head of Aircraft Debt Research [52]

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Great. And your financials, there's a note that says no aircraft are held for sale as of March 31. Does that imply that all the airplanes and the ABS transaction have been novated?

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Colm Barrington, Fly Leasing Limited - CEO & Director [53]

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Yes. All have been transferred over at this point in time.

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Douglas William Runte, Deutsche Bank AG, Research Division - MD and Head of Aircraft Debt Research [54]

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And the last question, do the write-offs on the aircraft ABS extend across each of the aircraft ABS transactions? And was it roughly proportional?

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Colm Barrington, Fly Leasing Limited - CEO & Director [55]

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Julie, do you want to comment on that one?

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Julie G. Ruehl, Fly Leasing Limited - CFO [56]

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Yes. Yes, it is across the -- all the transactions. And yes, roughly in the same range of write-downs -- of percentage write-downs.

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Douglas William Runte, Deutsche Bank AG, Research Division - MD and Head of Aircraft Debt Research [57]

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And you said on the call it's now $6.6 million as the value of the equity after the write-offs?

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Julie G. Ruehl, Fly Leasing Limited - CFO [58]

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Yes, that's what we have remaining.

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Operator [59]

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Your next question will come from the line of Mr. Bill Mastoris from Baird.

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William McGoldrick Mastoris, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [60]

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Colm and Julie, I wonder if you could go through and just kind of review what aircraft types do you have in your unencumbered assets.

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Colm Barrington, Fly Leasing Limited - CEO & Director [61]

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Well, Julie, do you have -- I know we have a list of them. It doesn't come immediately to hand, but it's mainly narrow-bodies. I think it might be only -- Julie, can you answer that?

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Julie G. Ruehl, Fly Leasing Limited - CFO [62]

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Just give me one second. It is mainly narrow...

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Colm Barrington, Fly Leasing Limited - CEO & Director [63]

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There is 1 [neo] in there.

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Julie G. Ruehl, Fly Leasing Limited - CFO [64]

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Yes, yes, I think that's correct.

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William McGoldrick Mastoris, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [65]

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I'm sorry?

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Julie G. Ruehl, Fly Leasing Limited - CFO [66]

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Mainly narrow-bodies.

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William McGoldrick Mastoris, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [67]

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Okay. And the average age and -- average age of those?

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Steven Zissis, BBAM US LP - CEO and President [68]

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I can help you with that. It's all narrow-bodies. The average age is from 2006 to 2019. There's 1 neo in there. And they're all A320neos, 21neos, 737, 800s and a 319 -- 1 319.

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William McGoldrick Mastoris, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [69]

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Okay. That's perfect. So the next follow-up question is, if you needed additional liquidity, is this an option that you would consider? And under what circumstances would you go ahead and maybe go ahead and convert that into a financing? And this goes back to an earlier question, I believe, Helane asked on the 6 3/8% to '21.

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Colm Barrington, Fly Leasing Limited - CEO & Director [70]

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All right. Can you clarify that question? Would we use those aircraft assets to secure...

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William McGoldrick Mastoris, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [71]

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For a refinancing, yes, for a refinancing of the 6 3/8%. I mean, I think the timing and recovery, I think everybody accepts the fact that it's going to be uncertain just in terms of its pace. And so if we did get down to it and we were in a precarious position this time next year, would that be used as maybe part of a refinancing for the 6 3/8%?

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Colm Barrington, Fly Leasing Limited - CEO & Director [72]

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If we had to, yes, certainly, there's no doubt about it. That's with those aircraft. They're unencumbered, and we would certainly be prepared to encumber those in order to generate liquidity to refinance another facility, if that was required, definitely.

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William McGoldrick Mastoris, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [73]

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Okay. But it sounds like there's no current plans at all to do that. Would I be correct, Colm, in that?

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Colm Barrington, Fly Leasing Limited - CEO & Director [74]

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Yes. I mean, look, things are a bit volatile right now. So we think the dust will settle over the coming months, and then we will -- we are certainly -- we continue to explore all possibilities, but we think more possibilities will emerge as the dust settles over the coming months.

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William McGoldrick Mastoris, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [75]

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Okay. So the next question I have has to do with, are you using any of the security deposits from any of your lessees kind of in lieu or as part of a deferral arrangement? And if so, what -- maybe any color there would be greatly appreciated.

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Colm Barrington, Fly Leasing Limited - CEO & Director [76]

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Julie, do you want to comment on that?

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Julie G. Ruehl, Fly Leasing Limited - CFO [77]

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Yes. At this stage, we are not contemplating using security deposits to offset rent deferrals. That's not been part of our arrangements to date. And in the event that we would use any security deposits, they would have to be replaced with a letter of credit or an arrangement to replace the cash security deposit at some point.

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William McGoldrick Mastoris, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [78]

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Okay. And then last question, I'm just confirming, you haven't repossessed any aircraft at this point from any of your lessees. Would I be correct in that assumption?

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Colm Barrington, Fly Leasing Limited - CEO & Director [79]

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You are correct. We have not repossessed any aircraft.

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Operator [80]

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And presenters, you have a follow-up question from Ms. Catherine O'Brien of Goldman Sachs.

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Catherine Maureen O'Brien, Goldman Sachs Group Inc., Research Division - Equity Analyst [81]

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So maybe one for Julie. I'm pretty sure that your other assets on your balance sheet are primarily driven by the value of that AirAsia order book portfolio. Any thoughts on the deferment of those orders impact that balance sheet figure? Any risk of write-down there?

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Julie G. Ruehl, Fly Leasing Limited - CFO [82]

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Yes, we have -- we looked at that at the quarter end. And at this stage, we are expecting those aircraft to deliver. And the delivery is just to be delayed. So we don't anticipate at the current time any write-down of that asset.

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Operator [83]

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Thank you, ma'am. And presenters, I am showing no further questions at this time. Thank you, and I would like to turn the conference back to Mr. Matt Dallas.

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Matt Dallas, Fly Leasing Limited - Investor Contact [84]

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Thank you, everyone, for joining us for our first quarter earnings call. We look forward to updating you again next quarter. You may now disconnect.

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Operator [85]

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Thank you, sir. And again, thank you, everyone, for participating. This concludes today's conference. You may now disconnect. Stay safe, and have a lovely day.