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Edited Transcript of FLY earnings conference call or presentation 22-Aug-19 1:00pm GMT

Q2 2019 FLY Leasing Ltd Earnings Call

DUBLIN Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of FLY Leasing Ltd earnings conference call or presentation Thursday, August 22, 2019 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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* 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

* Joyce Koltisko

Goldman Sachs Group Inc., Research Division - Business Analyst

* Koosh Rohit Patel

Deutsche Bank AG, Research Division - Research Associate

* Scott Jean Valentin

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

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the FLY Leasing Second Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference may be recorded.

I would now like to introduce your host for today's conference, Mr. Matt Dallas, Investor Relations. You may begin.

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

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Thank you, and good afternoon. I'm Matt Dallas with Investor Relations at FLY Leasing, and I'd like to welcome everyone to our second quarter 2019 earnings conference call. FLY Leasing, which we will refer to as FLY or the company, issued its second quarter earnings results press release, 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 & 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 expectation 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 like to now hand the call over to Colm Barrington, the CEO of FLY Leasing.

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

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Thank you, Matt, and welcome, everyone. Before discussing FLY's record second quarter earnings, I would like to spend a few minutes discussing industry events, fundamentals and our competitive landscape. Given that there's been a lot of industry discussion about the grounding of the 737 MAX, I want to first point out that this has had little impact on FLY since we have only 2 MAX aircraft in our fleet, both of which we acquired under sale-and-leaseback transactions and both of which are on long-term leasing arrangements. We do not have any MAX aircraft on order.

On the other hand, we have seen slightly stronger demand for current-generation Boeing 737s, especially 737-800s, as airlines look to fill holes in their schedules. This has provided some support for lease rates for 737 and A320 family narrowbodies, which are the workhorses of our industry and comprise the majority of FLY's fleet.

Turning to industry conditions generally, many of the fundamentals remain strong. Starting with passenger demand, the International Air Transport Association reported earlier this month that in June, global passenger traffic demand was up 5% as compared to the same month last year, and passenger load factor, a very important metric for the aircraft leasing industry, is an all-time high record of 84.4%.

IATA is currently projecting 5% traffic growth for all of 2019 and worldwide airline profits of $28 billion. As a result, we are seeing continued strong demand for leased aircraft for both new and used models. We have also witnessed a robust trading market for used aircraft, which has allowed FLY to sell 17 aircraft through the first 2 quarters of this year at strong gains to book value. In fact, since 2015, FLY has sold a total of 95 aircraft at an average 8% premium to book value, proving the FLY's ability to trade aircraft at significant gains is not limited to onetime events and that our balance sheet is robust.

BBAM remains a strong partner for FLY due to its global leadership in the aircraft leasing industry, a leadership position that is supported by a full-service global platform, a platform that include over 150 professionals based in 8 locations worldwide. BBAM manages more than 500 aircraft, values are over $27 billion and for a range of clients worldwide.

From our perspective at FLY, the BBAM platform provides FLY a distinct scale advantage when buying, leasing and selling aircraft. This has been particularly evident during the last 2 years where BBAM's scale allowed us to partner with other BBAM clients in completing our large portfolio acquisition, and it continues today as we partner with BBAM and other BBAM clients in selling aircraft into large ABS transactions arranged by BBAM.

Finally, it should be noted that FLY and BBAM have a strong alignment of interests due to the more than 17% ownership of FLY's stock by BBAM shareholders. This shareholding interest has been increasing over the last 2 years as BBAM and its shareholders have seen the real value in FLY's shares.

FLY has continued to maintain a consistent strategy based on 4 main principles: disciplined aircraft acquisitions; conservative financing; active fleet management; and, above all, an emphasis on consistently enhancing shareholder value.

We are rigorous on pricing, refusing to overpay for aircraft, refusing to accept unprofitable lease rentals or to add less popular models merely to build up our fleet size. Experience tells us that a popular aircraft that is purchased at the right price will stand up well and will provide positive returns in virtually all market conditions. Aircraft that are purchased at competitive prices will also produce sales gains when they are moved on to third parties. And FLY's consistent selling of aircraft with substantial gains, a record that we've repeated quarter-after-quarter and year-after-year, shows the validity of the strategy and the fact that we've been executing it in a consistent and disciplined way.

FLY's financing is conservative based principally on long-dated amortizing secured debt. We aim to have our debt terms broadly match our lease terms, and we swap our interest rate in fixed terms that, again, broadly match our lease terms. We generally avoid large one-off bullet payments. And to the extent we have had any such bullet payments, we have refinanced relevant facilities well ahead of their maturity dates.

Our active fleet management has allowed us to consistently sell aircraft at gains to book value, to generate funds, to purchase new aircraft and maintain a young fleet. Our active sales program has achieved these objectives and now leads FLY at a strong financial position with relatively low leverage and abundant capacity to fund the significant pipeline of A320neo family aircraft that we'll be acquiring over the coming months and years.

Our rigor in pricing and active fleet management are core aspects of our business. They also demonstrate FLY's continued emphasis on enhancing shareholder value through producing double-digit ROE, steadily growing book value per share and actively repurchasing shares at significant discounts to book value per share. We expect to continue to execute on these 4 strings to our strategy.

FLY continues to deliver record results. In the quarter ended June 30, FLY produced adjusted net income of $61.9 million equivalent to $1.92 per share and generated an adjusted return on equity of 33%. These EPS and ROE figures, which are also reflected in our GAAP results, are records for FLY. We also increased our book value per share since the end of 2018 to $24.28 at quarter end, 26% discount to book value.

This quarterly result reflects the significant developments that we've made at FLY over the last 3 years, selling older and less-performing aircraft, optimizing our capital structure, repurchasing shares and, most importantly, upgrading our fleet with newer and more profitable aircraft. We plan on continuing these activities.

Our Q2 financial results are significantly ahead of the same quarter a year ago, with a 146% increase in adjusted net income to $61.9 million and a $1.02 increase in adjusted earnings per share to $1.92, more than double last year's result. These financial results have had a positive impact on our book value per share, which grew to $24.28 at quarter end, a 13% increase on the figure at the end of 2018.

Last year, we issued 4.7 million new shares at $15 per share to facilitate our large portfolio acquisition. We are confident of the transaction in its entirety would be accretive to our book value and to our shareholders, and we are pleased to report results that demonstrate that this is the case.

The bottom line results and improvements are based on strong underlying figures. Larger and renewed fleet resulted in a 13% increase in operating lease rental revenue as compared to the same quarter a year ago. Meanwhile, total revenues increased to $147 million in the quarter, a 43% increase on last year's quarter 2. The net spread was also well up than last year's quarter 2, increasing to 7.5%.

The book value per share has grown consistently over the last 4 years and stood at $24.28 per share at the end of the quarter. This growth has been based on positive earnings from leasing our aircraft, consistent sales of aircraft at premiums to book value and an aggressive share repurchase program.

In the June quarter, we repurchased 1.47 million shares at an average price of $16.53 per share and for total spend of nearly $25 million. The 1.47 million shares that we've repurchased represented 5% of the total shares outstanding at the start of the quarter.

FLY continues to be active in repurchasing its shared as they are trading at a significant discount to book value per share, and in quarter 3 to date, we have repurchased another 300,000 shares at an average price of $16.83 per share.

At a meeting yesterday, our Board of Directors approved a new $50 million share repurchase program as we continue to see strong value in FLY's shares.

At quarter end, FLY owned a fleet of 98 modern aircraft plus 7 CFM56 engines with a total book value of $3.4 billion. Our fleet comprises almost entirely of in-production types from Airbus and Boeing. At quarter end also, our average fleet age was 7.4 years, and our average lease term was 5.3 years. As we continue into 2019 and 2020, we would see this fleet being enhanced by our acquisition of brand-new A320neo family aircraft that are already committed on long-term leases.

FLY continues to acquire other aircraft also, having completed 2 acquisitions in quarter 2 and with 4 further committed acquisitions in quarters 3 and 4. The first of our 21 committed A320neo family sale-and-leaseback aircraft is expected to deliver in quarter 4, followed by 9 more aircraft in each of 2020 and 2021, with the last 2 aircraft in this program expected in 2022.

We're also focused on additional acquisitions, and we'll buy more aircraft if they meet the investment criteria that I referred to earlier.

FLY has total growth capacity of more than $2 billion, allowing us to grow our portfolio significantly.

Following last year's significant fleet acquisition, we've been focused on deleveraging and have made substantial progress on this, mainly through our active aircraft sales program. In the June quarter, FLY completed a total of 7 aircraft sales at a 10% premium to net book value. These 7 sales generated cash of $76.1 million and economic gains of $18.9 million in quarter 2. We've contracted to sell a further 14 aircraft this year and expect most of these sales to be completed and the aircraft delivered in quarters 3 and 4.

Reduction in financial leverage year-to-date has been dramatic, with our net debt-to-equity ratio reducing from 4x at the beginning of the year to 3.1x at the end of June. We're seeing further falls in leverage in the current quarter.

The positive momentum at FLY continued in quarter 2. FLY continues to provide investors with real value proposition. FLY is producing attractive EPS and ROE figures and presents a positive outlook with attractive returns from our leased aircraft and our active sales initiatives. Our portfolio of modern and in-demand aircraft and long-term leases to a diverse group of global airlines provides FLY with a steady stream of income.

FLY has demonstrated that it can grow its portfolio without having to place speculative orders with the aircraft manufacturers. We continue to demonstrate that through BBAM's management, we can maintain high levels of fleet utilization, acquire additional aircraft at attractive prices and at attractive lease terms and execute an active sales program to produce substantial gains and generate substantial cash.

We have a disciplined financing strategy, which is substantially based on long-term finance -- long-term and amortizing secured debt. In particular, this financing structure insulates FLY from the vagaries of the capital markets and the need to refinance large tranches of debt at times when the capital markets may be dry. As a result, FLY has limited refinancing risk.

We continue to see value in FLY's stock, trades at a significant discount to book value and, accordingly, we'll continue to repurchase shares. As a result, we have renewed our share repurchase program as mentioned earlier.

With that, I'll hand you over to our CFO, Julie Ruehl, to take you through our financial overview.

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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 $54.1 million for the second quarter of 2019, a $30 million increase from the year ago quarter. Earnings per share nearly doubled from $0.87 a year ago to $1.68 in the current quarter. FLY achieved ROE of 29%, the fifth consecutive quarter of double-digit ROE and a 71% increase from the year ago quarter. These strong financial results were fueled by our end of lease incomes and the growth of FLY's portfolio as well as significant gains from aircraft sales as we take advantage of a vibrant secondary market to sell select aircraft.

As announced in early July, FLY committed to sell a portfolio of 12 aircraft, and we have contracted to sell 2 additional aircraft for a total of 14 aircraft. These aircraft sales at healthy premiums in net book value reduce leverage and position FLY well to begin acquiring 21 committed A320neo family aircraft in Q4 of this year.

FLY's operating lease rental revenue in Q2 2019 increased $11.9 million or over 13% to $101.1 million, driven by a $400 million increase in FLY's fleet at June 30, 2019, as compared to June 30, 2018. The trend of year-over-year double-digit operating lease revenue growth has continued for the past 6 quarters.

Not only has the quantum of operating lease rental revenue improved year-over-year but also the quality of earnings as demonstrated by FLY's increased net margin as our disciplined acquisition strategy pays off.

Total revenue increased 43% to $147 million in Q2 2019 from $102.7 million in Q2 2018. In Q2 2019, FLY recognized $28.8 million of end of lease income, a bulk of which relates to the Jet Airways lease termination. FLY recognized $16.1 million of gains on the sale of aircraft in Q2 from the sale of 7 aircraft, which, taken together, with related end of lease income, represents a 10% premium to net book value, as Colm mentioned.

Turning to expenses. Depreciation, interest expense and SG&A are all up as compared to the prior year quarter due to the growth of FLY's portfolio, although on a combined basis, these expenses grew by 11%, a lower growth rate than the operating lease rental revenue growth rate of 13%. Also, in Q2 2019, FLY incurred a $1.5 million loss on debt extinguishment, consisting almost entirely of noncash write-off of debt cost. The debt extinguishment costs incurred were related to debt repayments due to the aircraft sales I mentioned a moment ago. Overall, total expenses as a percentage of total revenues declined 19% year-over-year from 72% to 58%.

Now I'd like to cover our guidance for Q3 2019. Note that our guidance assumes that some of the aircraft sales from the 12-aircraft portfolio will not close until Q4. For the third quarter of 2019, we are expecting operating lease rental revenue of $94 million to $96 million. We expect amortization of lease incentives of $1 million to $2 million. Gain on sale of aircraft is expected to be more than $50 million. We expect no end of lease income. Depreciation expense will be approximately $33 million to $34 million. We expect interest expense of $33 million to $34 million. Debt extinguishment costs are expected to be approximately $3 million. Maintenance and other costs are expected to be less than $1 million. We expect SG&A expense $8 million to $9 million without consideration of any foreign exchange gains or losses that may occur. Overall, another record quarter is expected in Q3 with pretax income of approximately $70 million.

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 let's recap the highlights of quarter 2 2019. We achieved a 13% growth in operating lease rental revenue to $101 million. We sold 7 aircraft for total economic gain of $18.9 million, which was 10% above our book value. We produced $61.9 million of adjusted net income, $1.92 of adjusted EPS and a 33% adjusted ROE. We continued our track record of growing book value, which was $24.28 per share at quarter end, 13% higher than at the end of 2018.

Meanwhile, looking ahead, we have a committed growth pipeline of over $1 billion of new-generation Airbus aircraft, with the first aircraft delivering from this program later this year. We expect to add to this pipeline through more acquisitions. We have total buying power of more than $2 billion, and we've given pretax guidance of approximately $70 million for the September quarter.

These outcomes are all highly positive and demonstrates FLY's real value proposition. And meanwhile, FLY's shares are trading at 20% -- 26% discount to book value per share, book value, which is growing rapidly.

And with that, we're ready to take your questions

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Catherine O'Brien with Goldman Sachs.

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Joyce Koltisko, Goldman Sachs Group Inc., Research Division - Business Analyst [2]

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This is actually Joyce on for Katie. So just on those 12 aircraft sales and then, today, you announced 2 more. I was just wondering your thoughts on how you strategically think about balancing and locking in those gains for sale in a strong seller's market versus future revenues associated with your fleet. Just what are some of the puts and takes? And then is the $2.50 EPS, excluding that gain from sales, still a guiding target for you guys?

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

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Well, Joyce, I mean, as I mentioned, we have a significant growth pipeline of 21 A320neos plus options, and we are acquiring other aircraft as we go along. So we think it's highly beneficial to benefit from the low -- from the very strong demand for older aircraft and middle-aged aircraft, which exist today, to lock in some gains, generate further cash, to reduce our leverage, to reduce our exposure to certain airlines and to provide us with a capacity to fund the growth going forward. So we're very comfortable about the evolution to keep our -- maintain our growth strategy and our earnings profile.

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Joyce Koltisko, Goldman Sachs Group Inc., Research Division - Business Analyst [4]

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Understood. So is that $2.50 then just still like a longer-term guiding target for you guys?

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

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I think it's a reasonable target. We don't give guidance too long term and too specifically, but I think you can be putting that sort of figure into your analysis anyway. As a base, we hope that by further gains on sales, we can perhaps grow that number as well.

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Joyce Koltisko, Goldman Sachs Group Inc., Research Division - Business Analyst [6]

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Understood. And then just turning to your acquisitions target, I know you guys mentioned that you're so far targeting 4 more in the back half of this year, potentially more though. I think last year, you guys had mentioned that, that could be over $500 million of aircraft acquisitions for full year 2019. Is that still reasonable to expect? Or do you think that's shifted since start of the year?

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Colm Barrington, Fly Leasing Limited - CEO & Director [7]

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Look, we are in the markets on a daily basis. We have given that sort of target. We hopefully will achieve that. As we've demonstrated, we have done 2 acquisitions already, we have 4 more committed, and we're hopeful of gaining more. But I mean I think the big thing that you should look at is the growth that we will achieve from the A321neos -- A320neo family aircraft that we're taking one delivery in Q4, with 9 more slated for 2020 and 9 more for 2021.

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Operator [8]

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And our next question comes from Koosh Patel with Deutsche Bank.

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Koosh Rohit Patel, Deutsche Bank AG, Research Division - Research Associate [9]

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In addition to the committed growth pipeline of A320neo aircraft you have currently, I understand you also have potential for further growth through options on up to 20 additional NEOs. Can you just walk us through your process of evaluating whether or not you might consider taking up some or all of these and what the timing could look like and then whether the lease rates you're seeing in the market right now are supportive of exercising some of these options?

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

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Yes, Koosh, it's Steve. We started off with 20 NEO options with AirAsia. We passed up on 3 of them, so we're left with 17. Of those 17, we plan to exercise 8 of them given the demand in the current marketplace, which we'll deliver in 2020 and early 2021. And then we'll reassess the situation we might exercise more, but you can imagine, given the MAX situation, there's quite a bit of pent-up demand for NEO. So we think it's a good time to exercise them.

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Operator [11]

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And our next question comes from Helane Becker with Cowen.

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Helane R. Becker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [12]

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Just a quick clarification on the comment you just made on planning to exercise 8 for delivery in 2020 and 2021. Is that included in the 18 that you are already getting in 2020 and 2021?

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Steven Zissis, BBAM US LP - CEO and President [13]

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No, that's in addition.

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Helane R. Becker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [14]

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Okay. Perfect. And then just a couple other things, if you don't mind. The Jet Airways aircraft, have they all been reassigned to other providers at this point? And maybe you can talk a little bit about that.

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Steven Zissis, BBAM US LP - CEO and President [15]

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Sure. It's a good question, Helane. We had 3 NGs at Jet. 2 of them have transitioned relatively quickly, I think, within 2 weeks of repossessing those aircraft. And the third one we've put into maintenance to overhaul the engines in the airframe, and we'll be out signing that up in the fourth quarter with a client.

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Helane R. Becker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [16]

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Okay. Do you have like an MoU or an LoI on that? Or should you know that for sure, I guess?

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Steven Zissis, BBAM US LP - CEO and President [17]

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Yes, we're pretty confident. I mean given the MAX situation, there's quite a bit of pent-up demand for NGs, and we're just trying to balance what we're going to do and where we're going to place our aircraft in the fourth quarter. So we're not worried about it, but we don't have an LoI currently executed.

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Helane R. Becker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [18]

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Okay. And then I just have a question on one of the slides where you sort of talked about the average age of the fleet. You've been selling aircraft, and maybe I'm thinking about this incorrectly, but I would think you're selling older aircraft. And so the average age of the fleet should turn lower, but it doesn't seem to be. Is there -- I mean am I thinking about this wrong?

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Colm Barrington, Fly Leasing Limited - CEO & Director [19]

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Well, we're selling a mixture of older -- well, mainly mid-life aircraft, Helane. But as you know, like the rest of us, our fleet gets older every quarter, so you've got to keep adding new aircraft onto it. Secondly, the aircraft we've been selling have been generally lower-value aircraft because they were middle-aged. So they -- selling them out of portfolio doesn't have a significant impact on the average age as if you sold some more large and, say, widebodies, which are generally newer. But as we take on the NEOs, then the average life -- average age of our fleet will come down -- you'd see it coming down quite significantly again.

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Helane R. Becker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [20]

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Okay. I just want to clarify, I don't get older every quarter. How many aircraft -- or the MAX, have you had people calling you to ask you if you'd be interested in adding MAX aircraft to the fleet?

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Steven Zissis, BBAM US LP - CEO and President [21]

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I wouldn't say it's been a proactive solicitation. I mean there are some opportunities out there, but I think the main thrust in the marketplace is just to get a fix on when the aircraft will go back into service. I think once that -- once we get clarity on that, then I think you'll see a lot of possible deals pop up.

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Operator [22]

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(Operator Instructions) And we have a question from Scott Valentin with Compass Point.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [23]

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Just a question on the margin. I think, Julie, you pointed out or maybe, Colm, you said your margin has gone up to 7.5%. Given what's happened with interest rates, is there room for that margin to keep growing?

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Colm Barrington, Fly Leasing Limited - CEO & Director [24]

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Well, Scott, I mean, basically, we -- as I mentioned in my prepared remarks, we tend to match our funding and our lease rates to our lease terms. So we don't have a huge ability to change our existing financing in the short term. But obviously, as our facilities roll off and we renew the facilities, then we will avail of lower interest rates. And obviously, as we add on new aircraft and take on new facilities, they will be at lower interest rates. But I think probably in a more general sense, lower interest rates, I think, are generally good for the industry and good for leasing companies. So I think you'll see a general improvement in returns and in margins as a result of the low interest rates.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [25]

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Okay. And then on the lease maturity, I know it's come down a little bit probably with some of the sales at the aircraft. I think it was 5.8 years in the fourth quarter, now it's 5.4. It's not a big change, but it's down. Will that start to extend again once you get -- start getting delivery of the new NEOs?

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

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Yes. I think 2 factors there, Scott. The NEOs -- the contracted NEOs have long lease terms of 12 years and, of course, they're relatively high-value aircraft. They'll be coming in at over $50 million each. So both of those factors will have a positive impact on our weighted average lease term.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [27]

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Okay. Just one final question. Looking ahead, I guess, as you think about CapEx, I know you have the $1 billion in the options, and you've talked about narrowbodies, but there's some thought that in early 2020, there will be some demand or refleeting some of the widebodies. Is there any thought of maybe adding to your 787 fleet or any other widebody aircraft?

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Steven Zissis, BBAM US LP - CEO and President [28]

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No. Not currently, Scott.

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Operator [29]

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And our next question comes from Jamie Baker with JPMorgan.

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Jamie Nathaniel Baker, JP Morgan Chase & Co, Research Division - U.S. Airline and Aircraft Leasing Equity Analyst [30]

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Most of my questions have been answered. But when we think about the NEO delivery pipeline and also where incremental demand is coming right now given the MAX grounding, is there any reason to think that those deliveries might drive somewhat of a change in your geographic diversity? Just looking at Slide 22, wondering if that data should be reasonably constant over the next few years or we might see some shifts there?

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Steven Zissis, BBAM US LP - CEO and President [31]

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Well, look, we're already heavy in Asia, and as those NEOs deliver, I would expect that share of our exposure to stay steady or increase, Jamie. But looking at the total industry, where is the growth occurring, and most of it is occurring in Asia.

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Jamie Nathaniel Baker, JP Morgan Chase & Co, Research Division - U.S. Airline and Aircraft Leasing Equity Analyst [32]

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Sure. Okay. Just didn't know if there was anything more particular related to the geographic placements of the NEO. Appreciate it. And good quarter.

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Colm Barrington, Fly Leasing Limited - CEO & Director [33]

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Thanks, Jamie.

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Operator [34]

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

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Joyce Koltisko, Goldman Sachs Group Inc., Research Division - Business Analyst [35]

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I just had a follow-up. We've been hearing from some of the other lessors that sale-leaseback market has rationalized to some extent, and I was just curious if you've been seeing the same thing. Are we at the point where you'll be able to source deals with attractive economics? Or do you think there's still room to go there?

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Steven Zissis, BBAM US LP - CEO and President [36]

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Yes. Good question. Yes, definitely, on the top of the market, things are starting to get a little bit more rational, but there's still a very what we'd call thin economics, especially for FLY. So right now, we don't see really any opportunities in that Tier 1 sector for FLY. You need to move down to the kind of more difficult credits to make the economics work on the newer stuff for us. But just, in general, I agree with the comments from other people in the industry that, that sale-leaseback market is starting to be a little bit more rational.

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Operator [37]

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And I am showing no further questions at this time. I'd like to turn the call back to Mr. Matt Dallas for closing remarks.

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Matt Dallas, Fly Leasing Limited - Investor Contact [38]

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We'd like to thank everyone for joining us for our second quarter financial results, and we look forward to updating you again next quarter. You may now disconnect.

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Operator [39]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone, have a great day.