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Edited Transcript of FLY earnings conference call or presentation 9-Mar-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 FLY Leasing Ltd Earnings Call

New York Mar 9, 2017 (Thomson StreetEvents) -- Edited Transcript of FLY Leasing Ltd earnings conference call or presentation Thursday, March 9, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Matt Dallas

FLY Leasing Ltd - IR Manager

* Steve Zissis

BBAM LLC - President & CEO

* Colm Barrington

FLY Leasing Ltd - CEO

* Gary Dales

FLY Leasing Ltd - CFO

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Conference Call Participants

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* Gary Liebowitz

Wells Fargo - Analyst

* Catherine O'Brien

Deutsche Bank - Analyst

* Helane Becker

Cowen and Company - Analyst

* Andrew Light

Citi - Analyst

* Justine Fisher

Goldman Sachs - Analyst

* Jason Arnold

RBC Capital Markets - Analyst

* Bill Mastoris

Baird & Company - Analyst

* Scott Valentin

Compass Point - 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 fourth-quarter earnings call. (Operator Instructions) I would now like to turn the call over to Matt Dallas. You may begin.

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Matt Dallas, FLY Leasing Ltd - IR Manager [2]

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Thank you and good morning. I'm Matt Dallas, the Investor Relations Manager at the FLY Leasing and I'd like to welcome everyone to our fourth-quarter and full-year 2016 earnings conference call. FLY Leasing, which we will refer to as FLY, or the Company, issued its fourth-quarter earnings press release, which is posted on the Company's website FLY Leasing.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 presentations page. If you are listening to both the live call and webcast, you may want to mute your computer as there will be a slight delay in the webcast audio.

Representing the Company today on this call will be Colm Barrington, our Chief Executive Officer; Gary Dales, 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 more fully in the earnings press release and described in the Company's filings with the SEC. Please refer to the sources for additional information.

FLY expressly disclaims any obligation to update or revise any of these forward-looking statements whether because of future events, new information, a change in its views or expectation, or otherwise. An archived webcast of this call will be available for 90 days on the Company's website. And with that, I would now like to hand the call over to Steve Zissis, the President and CEO of BBAM. Steve?

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Steve Zissis, BBAM LLC - President & CEO [3]

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Thank you, Matt, and welcome to FLY's fourth-quarter earnings call. First, I'd like to make some brief remarks on our industry conditions. Airlines around the world continue to report very strong earnings. Turkey remains a concern, but FLY has minimal exposure there, around 5% of its fleet. And we are likely to reduce our exposure further by transitioning a couple of aircraft out when those leases expire later this year.

We are continuing to see strong demand for our aircraft evidenced by our 100% fleet utilization as well as by the fact that we only have four aircraft, all narrowbodies, left to re-market for the remainder of 2017. Those aircraft all come off lease in the latter part of the fourth quarter and we don't foresee any challenges remarketing those aircraft.

Last quarter I mentioned that FLY was close to completing the disposition associated with its fleet renewal plan, which we launched at the end of the second quarter in 2015. I am pleased to report that in the fourth quarter of 2016, FLY sold another eight aircraft bringing its total dispositions since the start of the program to 68 aircraft. To put that in perspective, FLY's fleet, as of June 30, 2015, stood at 129 aircraft. (technical difficulty)

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Operator [4]

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Ladies and gentlemen, please stand by. You may resume.

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Matt Dallas, FLY Leasing Ltd - IR Manager [5]

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I'd like to apologize to everyone; it appears our line was inadvertently disconnected. Steve, why don't you pick up where you think you left off.

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Steve Zissis, BBAM LLC - President & CEO [6]

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Thank you. So, to put that in perspective, FLY's fleet at June 30, 2015 stood at 129 aircraft, meaning essentially we turned over half of our fleet in 18 months while acquiring 15 newer aircraft over that same period. As a result, we have significantly transformed our fleet with younger aircraft that are under longer-term leases with better earnings profile.

Besides transforming our fleet, we have also accumulated significant amount of free cash while still making attractive acquisitions and buying back significant amounts of FLY stock. At year end, we had over $500 million of free cash, a significant amount of borrowing capacity in our acquisition facility, and $380 million of unencumbered assets. We are well-positioned to act on attractive opportunities in 2017.

As you have heard from others, the sale-leaseback market for new aircraft from top-tier airlines remains very competitive. Last year, FLY acquired 10 aircraft for a total amount of $559 million. Virtually all these aircraft were sourced through BBAM's global origination channels. In 2017, we budgeted $750 million of new acquisitions. Once again, we promise to source only assets that meet our internal return hurdles and that positively contribute to net income and improve our return on equity.

I'd like to make a few comments about the $92 million pretax impairment charge that we recorded in the fourth quarter. While I recognize this is a significant number relative to FLY's current earnings, over 90% of this charge, or $84 million, relates to two aircraft which we acquired in 2011 as part of the 49 aircraft GAAM portfolio. We acquired these aircraft with attached nonrecourse debt that exceeded our allocated purchase price. Even after the impairment charge, our shares continue to trade at a significant discount to book value as we believe the market has not fully appreciated FLY's transformation nor recognize the value of FLY's fleet or the value created by the relationship BBAM has built over the many years with our airline customers.

As a result, we have embarked on an aggressive share repurchase program to return capital to our shareholders and because we recognize the inherent value in buying our shares at a significant discount to book value. We will continue that program into 2017. Now let me turn the call over to Colm Barrington, our FLY CEO.

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Colm Barrington, FLY Leasing Ltd - CEO [7]

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Thank you, Steve, and good morning, everyone. Thank you all for joining us. FLY had several significant achievements in 2016, specifically our continued fleet rejuvenation program, sales of older aircraft and purchase of newer models, and continued share repurchases.

As Steve mentioned, our GAAP financial results for the year were heavily and negatively impacted by the noncash impairment charge of $92 million on three (technical difficulty).

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Operator [8]

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Ladies and gentlemen, please stand by. You may resume.

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Colm Barrington, FLY Leasing Ltd - CEO [9]

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Thank you for waiting, everybody. I'm sorry about this. I'm not quite sure what's happened. Anyway, I will resume. As Steve mentioned, our GAAP financial results for the year were heavily and negatively impacted by the noncash impairment charge of $92 million on three older widebody aircraft. Our adjusted net income for the year, on the other hand, which excludes the impairment of certain adjusted other items, was $79.3 million or $2.38 per share.

In the year we completed the purchase of 10 aircraft for a total investment of $559 million. While this investment was a little lower than we had targeted, we have acquired high quality assets, a significant contribution to our future earnings. We continue to employ a disciplined approach to our acquisitions, ensuring that the economics of each acquisition meet our financial and return criteria. We have passed on numerous opportunities that fall short of our return requirements.

At the same time, we sold 27 older aircraft at a premium to net book value. These sales further improved our fleet metrics and have generated further sales gains and liquidity. As Steve mentioned at year-end we had $580 million of unrestricted cash and $380 million of unencumbered aircraft giving us significant firepower to acquire additional aircraft as opportunities arise.

We also continue to repurchase our shares. During the year, we bought back 3.4 million shares for approximately $40 million. This represents approximately 10% of our shares outstanding at the start of the year and improved our adjusted net income by $0.16 per share. Operationally it was a very good year reflecting the help of the international aviation industry referred to by Steve. We are close to 100% fleet utilization and our overdue lease receivables balance at year-end and indeed throughout the year was at a leveragable level.

As already mentioned, we invested $559 million in 10 aircraft during the year. These 10 attractive aircraft have an average age of three years and are on leases with an average term of 10 years. While enhancing our fleet metric, the long leases attached to these aircraft also provide FLY with average long-term income securities, a resultant annual pretax earnings of approximately $32 million would be highly accretive to EPS and ROE. In 2017, we again had an acquisition target of $750 million. Using the global network of BBAM, we are continuing to pursue more aircraft acquisitions but will only complete transactions when the quality aircraft is (technical difficulty) and if the acquisitions are accretive to shareholder returns.

Our unrestricted cash balance of (inaudible) added to our $380 million of unencumbered aircraft and $272 million remaining after our aircraft acquisitions (inaudible) (technical difficulty) and current attractive (technical difficulty) markets imply the financial capacity to acquire up to $3 billion of additional aircraft. We will continue to pursue growth aggressively (technical difficulty).

In 2016 we sold 27 older aircraft in our fleet. These 27 aircraft had an average age of 14 years and are on leases with an average remaining term of three years and these leases were assumed to be less profitable. 27 sales resulted in a total gain of $24.5 million which was a 4.5% premium to our net book value. We also recorded a $2.7 million gain on the conversion of an operating lease with financing. The combined impact of our sales and acquisitions has had a significant positive impact on our fleet metric.

At year end 2016, our average fleet age is 6.2 years, a reduction of nearly 2 years in the 18 months since we started our fleet rejuvenation program. FLY now has one of the youngest fleets of any aircraft lessor and the second youngest fleet of the four aircraft lessors listed on the New York Stock Exchange. Meanwhile our average lease term has also increased significantly and stood at 6.8 years at the end of 2016, a 31% increase over 18 months. This long average term, combined with our (technical difficulty) fleet provides FLY with significant future financial security.

In 2016 we continue to execute on our share repurchase program acquiring 3.4 million shares during the year. These shares were purchased at an average price of $11.73 per share, a 36% discount to our post impairment net book value of $18.39 per share at the end of 2016. Since September 2015 when we started our aggressive share repurchases, we have bought back 22% of our shares at a 29% discount to net book value. At year end 2016, FLY had 32.3 million shares outstanding and our shares were traded at an approximate 30% discount to our year-end net book value per share.

Our share repurchases will also continue to have a positive impact on FLY's EPS and ROE in 2017 and beyond. We have $16 million remaining in our current share repurchase program and we expect to continue to repurchase shares in 2017. With that, I will hand you over to our CFO, Gary Dales, to take you through the financial overview.

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Gary Dales, FLY Leasing Ltd - CFO [10]

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Thank you, Colm. We are reporting a net loss for the fourth-quarter of $63.8 million or $1.98 per share. For the year, we are reporting a net loss of $29.1 million or $0.88 a share. These figures include a $92 million impairment charge recorded in the fourth quarter, which I will discuss further in a minute.

Our adjusted net income of $30.6 million or $0.95 per share for the fourth quarter and $79.3 million or $2.38 per share for the year. Our rental revenues for the year were $314 million. This is a decline from the prior year and reflects the sale of 71 aircraft since the beginning of 2015. During 2016, we sold 27 aircraft generating gains of $27.2 million. Total expenses for 2016 were $381.4 million, down approximately 12% from the prior year reflecting the fewer number of aircraft in our portfolio.

The fourth-quarter impairment charge relates to three older widebody aircraft, two A340-600s and one A330-200. The two A340 aircraft were acquired in 2011 in the GAAM acquisition. The three aircraft represent the oldest widebodies in our fleet. We have no other A340s and this is the only A330-200 in our fleet. During our annual fleet review, we determined that the carrying values on our books for these aircraft needed to be reduced to reflect the fact that we now expect these planes to be disposed of earlier than anticipated and at prices lower than previously forecast. After these impairment charges, the net book values of the A340s are less than $25 million each and the A330-200 under $35 million. These amounts represent our current estimates of the fair value of these aircraft.

Also during the fourth quarter fleet review the rest of our aircraft were evaluated for impairment and no other impairment was identified. This impairment analysis will also impact future depreciation amounts for these three aircraft as we have shortened of their useful lives and, in the case of the two A340s, reduced their salvage values. We captured this in our Q1 2017 guidance which I will review in just a minute.

As Steve mentioned in his introductory remarks, the A340s were acquired with attached nonrecourse debt or the allocated debt balances for these aircraft are currently well in excess of our net book values. As a result, to the extent these aircraft are sold at prices below our then allocated data balances, we will recognize a gain on debt extinguishment.

Now let me cover a few items of guidance. For the first quarter of 2017, we are expecting operating lease rental revenue to be between $78 million and $80 million. We expect amortization of lease incentives to be between $1 million and $2 million. We do not expect any end of lease income. Depreciation expense is expected to be between $32 million and $33 million and is up because of the additional depreciation on the A330s and A340s. W

We expect interest expense of between $31 million and $32 million. Selling, general and administrative expense will be between $7 million and $8 million. Before I turn the call back to Colm, I want to call your attention to the appendices where we have our cap table and a reconciliation of our adjusted net income. With that, let me turn it back to Colm for his closing remarks.

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Colm Barrington, FLY Leasing Ltd - CEO [11]

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Thank you, Gary. 2016 was generally a positive year for FLY as we continue to rejuvenate our fleet and reduce our share count. We also had very positive operating results in virtually 100% of our fleet utilization and very positive leasing performance. We have also completed virtually all of our near-term lease remarketings and do not have any aircraft available for lease until towards the end of this year. With that, we are now ready for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Gary Liebowitz, Wells Fargo Securities.

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Gary Liebowitz, Wells Fargo - Analyst [2]

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Thank you, operator. Good day. On the impairment charge, can you tell us what triggered the accrual now? The A340 market has been weak for many years. Just curious why -- if you could talk about the timing of the charge.

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Colm Barrington, FLY Leasing Ltd - CEO [3]

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Well, Gary, as you probably know, we review our fleet annually for impairments and these aircraft, net all our impairments test under previous reviews. I think essentially two things have happened. One is, particularly in the case of the A340s, the future appraised values at the aircraft have declined quite significantly over the last 12 months. I think there is now about 20% of this fleet is not being used right now. So, that's had quite a significant impact.

Secondly, the lease terms have shortened because we are a year more into them, so we have less leasing -- these are relatively attractive leases so we had relatively good lease rentals from them. So when you take the present value of the lower future residual and the shorter lease term remaining, you got to a present value that was in line -- was less than our caring value. And of course today's appraised values, in any event, are lower than our net book value as we were (technical difficulty). So a combination of those factors meant that we did not meet the impairment test this year as we always had done in previous years.

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Gary Liebowitz, Wells Fargo - Analyst [4]

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Okay, and also, just following up on the impairment review, you had these three aircraft that failed the impairment test and all the others passed. Some companies disclose the number or the book value of the aircraft that they consider more susceptible to future impairments. I wonder if you have any such color around the rest of your impairment tests.

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Colm Barrington, FLY Leasing Ltd - CEO [5]

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Well, we haven't disclosed any other aircraft, Gary. As you know, we have seven other widebodies in our portfolio, four 787s, two 777s and one A330-300. Those seven aircraft are all less than three years old and are on leases under remaining terms of approximately 10 years. So they don't -- they are well above any impairment testing. Our -- the range of our fleet is all (technical difficulty) narrowbody aircraft and these do not require any impairments either.

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Gary Liebowitz, Wells Fargo - Analyst [6]

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Okay.

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Colm Barrington, FLY Leasing Ltd - CEO [7]

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As you know, we have now a relatively young fleet on a relatively long-term leases as compared to any of the other leasing companies and so we feel very comfortable with the remaining book values of our portfolio.

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Gary Liebowitz, Wells Fargo - Analyst [8]

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Thanks, Colm. And one last one. Can you just give us an update on the A320neo acquisition you've talked about before, when you expect that to close, and has that schedule changed since we last spoke three months ago?

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Steve Zissis, BBAM LLC - President & CEO [9]

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Yes, Gary, this is Steve. That is still under discussion because of the delay on the GTS engines, so that's going to be picked up again in the early part of 2018. That is not a 2017 transaction for us. If it goes ahead at all. We are still discussing whether it makes sense or not.

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Gary Liebowitz, Wells Fargo - Analyst [10]

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Okay. Thank you very much.

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Operator [11]

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Catherine O'Brien, Deutsche Bank.

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Catherine O'Brien, Deutsche Bank - Analyst [12]

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Good morning, gentlemen. So, I sat earlier this week -- we heard from one of the panels that while 10 to 12 months ago it looks as if we might see lease rates improve around June that trend reversed and hasn't improved since. And in addition, that sale-leaseback lease rates are under more pressure than aircraft order books and I was just wondering, is that consistent with what you are seeing? And if so, are you still interested in doing some neo and Max sale leasebacks as you did last quarter?

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Steve Zissis, BBAM LLC - President & CEO [13]

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Yes, look, in general, we are still looking at neo and Max sale leasebacks. Some of the transactions that we are considering are very competitive, and don't make sense for our internal hurdle rate returns, but there are a couple transactions out there that do seem to work for us and we haven't signed them up yet, but we are getting closer.

In general, I would say secondary remarketing of used equipment is actually holding up much better than we expected and we are actually seeing lease rates on used 800s starting to move up again. It does seem to be a shortage of 800s available in the marketplace and the 320 seems to be steady-state right now. On the placement of new neos and Maxes, as you know, we do not currently have an order book or even plan to have an order book, so we really couldn't give you any insights into that market.

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Catherine O'Brien, Deutsche Bank - Analyst [14]

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Okay, great. And then I think you gave some color on last call that you just hadn't found enough deals in 2016 to meet your $750 million target, but you are again targeting $750 million this year. It sounds like there could be upside to that if you found enough deals. Have you seen any changes in the market that lead you to believe that this year will be a better market for buyers?

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Steve Zissis, BBAM LLC - President & CEO [15]

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Not really. It's still very competitive. I think there are a few things going on out there that may suggest that some of the capital will pull back. And if it does, you know that we are in a pretty strong position to take advantage of a correction in the marketplace. So we are still waiting to see if something like that will happen.

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Helane Becker, Cowen and Company - Analyst [16]

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Okay, great. And just one quick follow-up if I may. Is some of that news you are talking about maybe some increased capital controls out of China decreasing competition or --?

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Steve Zissis, BBAM LLC - President & CEO [17]

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Yes, absolutely that is one of them. Also, the possibility of a few airlines perhaps restructuring in the near future might present some opportunities. As you know on the last call, I mentioned that one thing to keep your eye on is the strength of the dollar and the appreciation of the dollar in some of these emerging markets especially for the low-cost carriers has hurt their cash flow. And the result of that is I think there will be more opportunities to do sale-leasebacks or financing transactions with some of those airlines, so we are keeping our ear to the ground. We think there will be some opportunities coming up in the near term, but it's probably still a quarter or two away from really seeing that opportunity.

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Catherine O'Brien, Deutsche Bank - Analyst [18]

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Thanks so much for all that color.

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Operator [19]

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Helane Becker, Cowen.

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Helane Becker, Cowen and Company - Analyst [20]

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Thanks, very much, operator. Hi, guys I just had a couple of questions. One of the things that we heard also at (inaudible) was at one of the Chinese lessors said that they did some -- raised $200 million through crowdfunding. So we are talking about hopefully some improvement in the market, but it seems like a lot of money is still chasing these deals. And I am just kind of wondering is, it won't remain competitive or perhaps even get worse?

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Steve Zissis, BBAM LLC - President & CEO [21]

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Gee, if a Chinese lessor did crowdfunding then I would say that (inaudible) are right in the asset class, right? So for the last 10 years everybody is shunned the asset class and now everybody wants to be in it, so it's pretty interesting. I don't know. From what we've seen, definitely the Chinese are a bit less active this year than in prior years, and there is a lot of talk about capital controls and paring back their appetite for aviation. So I think eventually it happens that they will pull back, but, look, capital is free in this world. So when it was free, everybody throws it around.

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Helane Becker, Cowen and Company - Analyst [22]

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Fair enough. On the returns, are you expecting them to improve or -- because I am trying to figure out how you will achieve the same level of expected return in the market if returns don't improve on a year on year basis.

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Steve Zissis, BBAM LLC - President & CEO [23]

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Look, we have always said we are not going to grow for growth sake. So if we find the opportunities to deploy our capital in what we think are accretive and cash positive yields, we are going to do it. If we can't, then we have two choices, either to continue to buyback our stock or even take the Company private. Those would be the options out there. We are not going just to grow for growth's sake. We have always said that to our shareholders and we remain with that view.

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Helane Becker, Cowen and Company - Analyst [24]

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Okay. That's really fair. Thank you very much.

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Operator [25]

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Andrew Light, Citi.

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Andrew Light, Citi - Analyst [26]

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Hi, good morning. Do you expect to make any significant disposals this year, or are you done after your fleet renewal program?

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Colm Barrington, FLY Leasing Ltd - CEO [27]

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Andrew, I don't think we have any huge number of disposals this year. As you know, we have been working hard on it. We have disposed of a huge number, percentage of our aircraft, and most of our older aircraft are now gone. So I don't think you'll see any significant disposals. You might see some opportunistic sales from time to time where we find a very willing buyer, but, I don't think it is any huge number.

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Andrew Light, Citi - Analyst [28]

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Okay, thanks. Can I just ask a follow-up question on adjusted net income? You seem to exclude impairments but include gains. Are you satisfied that that is an appropriate measure, particularly given, I think, IFRS pressures to the end reported with adjusted figures?

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Gary Dales, FLY Leasing Ltd - CFO [29]

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Hey, Andrew; this is Gary. Yes, we do adjust our ANI for impairment, and we have not adjusted out the gains on sales. We are very cognizant of where the SEC has been coming and, at least for right now, we decided to remain consistent with how we been presenting adjusted net income. As you know, there is not any specific rules on how it should be presented. We think it gives a good representation of how our operating results should be viewed.

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Colm Barrington, FLY Leasing Ltd - CEO [30]

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And I think the essential difference was due, Andrew, is that sales are cash sales. We generate cash from the sales as the impairment is noncash charge.

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Andrew Light, Citi - Analyst [31]

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Right, but you do have a situation there where you generated a gain on sale on a previously impaired aircraft, or does that -- has that not happened?

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Colm Barrington, FLY Leasing Ltd - CEO [32]

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I don't believe that's --

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Gary Dales, FLY Leasing Ltd - CFO [33]

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That is been very rare. As you know, we (inaudible) in the past on some transactional impairments where we've had to write down aircraft to its estimated selling costs, and it was potentially some immaterial (technical difficulty) with the actual sales price was but we don't really have gains where we recognize on previously impaired aircraft.

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Andrew Light, Citi - Analyst [34]

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Okay, great. Thank you very much for that.

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Operator [35]

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Justine Fisher, Goldman Sachs.

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Justine Fisher, Goldman Sachs - Analyst [36]

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Good morning. The first question I have is just a follow-up on the issue of Chinese capital because I know it is a huge focus for people that I've been talking to in terms of tail risk in the market. So when you guys say that you are seeing decreased activity, could you give us a little bit more color of tangibly what that is? Are you seeing fewer Chinese bids in the sale-leaseback business that you might be looking at? What are the tangible signs of lower activity or is it just an expectation that you think capital controls will eventually have more of an impact?

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Steve Zissis, BBAM LLC - President & CEO [37]

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Yes, I think it's two places that we see, Justine, is on the sale-leaseback bids, we see less Chinese showing up on those RFPs than we have in the past. And then on a couple aircraft portfolio and one-off trades from lessors, who we are also seeing them less active in that market. Look, it's just our feel of the marketplace; it's not like we actually count how much capital is going at each of these deals, so it's not very scientific.

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Justine Fisher, Goldman Sachs - Analyst [38]

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Okay, and it seems as though it would be difficult for that to be driven by margins not making sense because we know that the cost of capital for Chinese players is relatively low. So it can't be that they are just turning away from the market because the margins don't meet their requirements. So it would seem to be something else, as you said previously, like capital controls or something like that. Is that what your sense is?

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Steve Zissis, BBAM LLC - President & CEO [39]

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That would be our guess also.

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Justine Fisher, Goldman Sachs - Analyst [40]

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Okay, and then a couple of other questions on the balance sheet. Number one, I know you said that you could take the Company private but you guys are been buying back so many shares that it seems to be kind of slowly happening anyway and so is there a place for using some of that cash to repay debt? I mean if you say -- if you want to stop short of basically taking the Company private by buying back so much stock, is there a place to delever the balance sheet? Or do you feel as though you wouldn't really gain a benefit from that either in the stock market or from the rating agencies or anything, because your leverage is fine where it is and there is not really a great reason to do that?

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Colm Barrington, FLY Leasing Ltd - CEO [41]

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I think -- yes, Justine, I think two things. One is, we think our leverage is fine. A lot of our debt, as you know, is secured debt, and the maturities are relatively long, and match the terms of our leases. But we do have some unsecured debt where we are (inaudible) essentially or economically after debt, so as of now we don't think there is much point in trying to use our cash to repay debt.

We also believe that it s better for us right now to be buying shares and then to be buying aircraft. We didn't meet our $750 million target last year. We did close $600 million, and we are hopeful we can meet targets this year. So we are keeping our cash to buy shares and aircraft essentially because we feel that running the Company and growing the Company sensibly and reducing the share count are the two best ways to produce shareholder returns.

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Justine Fisher, Goldman Sachs - Analyst [42]

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Okay, thanks. And the last question I have is also related to FLY's position in the industry. I know that there is a FLY BBAM relationship and so in some ways because FLY can benefit from that relationship, it's part of a bigger lessor, so it's not -- I wouldn't necessarily look at a FLY in a vacuum as a lessor of its size. But do you think that there is a place in the market over the next five years for a lessor the size of FLY alone, like FLY ex-BBAM? Do you think there is a place for a smaller book value sized lessor, sub $5 billion, let's say, or do you think that as the industry grows and consolidates so too must smaller lessors?

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Colm Barrington, FLY Leasing Ltd - CEO [43]

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Well, I certainly think there will always be a place for niche players in our markets, people dealing with midlife aircraft, people dealing with older aircraft, people dealing with part-out aircraft, people who are trading aircraft. So I think there will always be a place for smaller niche players. I think you are right, I think as a public lessor, I think FLY requires the scale of BBAM and you know BBAM is the third-largest aircraft lease manager in the world and we have got a large team of people spread around the world. So FLY benefits from all of that. So our size doesn't really hurt us right now.

Obviously, we would like to grow the Company. We think that will give us a better chance of getting a better rating, for example. But, as of now, we have the operational efficiencies of BBAM, so our size is not recovering for us from an operational point of view.

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Justine Fisher, Goldman Sachs - Analyst [44]

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And if you didn't have the BBAM relationship, just commenting on the market, do you think that a lessor of your size, ex-that relationship, it would be difficult to compete?

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Colm Barrington, FLY Leasing Ltd - CEO [45]

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I think any smaller leasing company of less than 100 planes with its own internal management would have difficulty competing. If you are trying to be a lessor of relatively new aircraft and build a basis, yes.

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Justine Fisher, Goldman Sachs - Analyst [46]

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All right. Thank you guys for the time. I appreciate it.

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Operator [47]

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Jason Arnold, RBC Capital Markets.

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Jason Arnold, RBC Capital Markets - Analyst [48]

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Hi, guys that I was wondering if you could comment on fleet adds to date in the first quarter or any expected here over the near-term?

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Colm Barrington, FLY Leasing Ltd - CEO [49]

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Jason, (inaudible), I think he didn't hear the question. You're asking have we added any aircraft in the first quarter and have we any near-term transactions underway?

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Jason Arnold, RBC Capital Markets - Analyst [50]

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Correct.

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Colm Barrington, FLY Leasing Ltd - CEO [51]

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We have not added any aircraft as of today in the first quarter and we actually don't comment normally on future acquisitions until we actually contract them. So we don't actually have any completed acquisitions or contracted acquisitions as of now.

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Jason Arnold, RBC Capital Markets - Analyst [52]

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Okay, and then -- thanks for that. And then, Gary, I believe you mentioned debt gains were possible on the impaired GAAM aircraft if they were sold. So I was just curious if you could give us a little bit more color on how that works and if you were to sell them today, what size of gain would that be? Any color there?

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Gary Dales, FLY Leasing Ltd - CFO [53]

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Well, I can tell you that today, the debt associated with the two A340s is around $100 million and -- but they are not the only aircraft associated with that facility. So it's a -- it is a -- look, we don't have a precise figure. When they actually are disposed of we will recognize likely a substantial gain on the payment and retirement of that debt.

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Jason Arnold, RBC Capital Markets - Analyst [54]

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Okay. Super. Thanks for the color.

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Operator [55]

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Bill Mastoris, Baird & Company.

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Bill Mastoris, Baird & Company - Analyst [56]

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Thank you. I'd like to follow up a little bit on Justine's question. Gary, I should say, Colm, you indicated that leverage is okay right now, but I'm wondering, if you did go private how far would you be willing to stretch that balance sheet? And I knowledge the frustration that you have had with your stock, but with current leverage pretty high and the prospect for may be increased leverage, what is your tipping point? And I do have a follow-up.

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Colm Barrington, FLY Leasing Ltd - CEO [57]

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Yes, well, I think we've said that we are happy to keep our leverage in the 3 to 4 times equity range. I can't see much why we would want to extend that in the unlikely event the Company did go private. So I can't see much change in that. Who knows what might happen down the road. But as of now, I can't see any reason to change our leverage.

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Bill Mastoris, Baird & Company - Analyst [58]

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Okay, and then a quick follow-up I have, in the past you've mentioned that the unencumbered asset base that $750 million was a reasonable target and maybe even $1 billion and you are currently sitting at $380 million. Is that kind of a change in thinking for you or is this just kind of a blip and we might expect that unencumbered asset value to actually rise over the next several quarters?

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Colm Barrington, FLY Leasing Ltd - CEO [59]

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I'm not confident of the billion dollar figure, but obviously we'd like to keep our unencumbered asset base reasonably low just to fall within the amount of unsecured debt we have within the Company. So, I think we are reasonably comfortable where we are. It can go up -- it might go up or down a little bit, but I can't see any significant change in the short term.

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Bill Mastoris, Baird & Company - Analyst [60]

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Okay. Thank you very much.

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Operator [61]

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Scott Valentin, Compass Point.

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Scott Valentin, Compass Point - Analyst [62]

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Thanks for taking my question. Just on the buyback, it looks like the pace slowed quite dramatically in the fourth quarter. I'm just wondering if that was due to the pending impairment or is it leverage constraint? Just wondering as to why the pace -- I was looking at about 200,000 shares in the fourth quarter. Just wondering why it slowed down so much.

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Colm Barrington, FLY Leasing Ltd - CEO [63]

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Yes, look, we are restricted by the programs we get into, Scott. And we've set our targets within the fourth quarter and have to stick with them. So the share price went up a bit more than we expected and therefore we were buying less shares than we would've liked.

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Scott Valentin, Compass Point - Analyst [64]

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Okay, and then your reference to -- I think it was Steve mentioned it's basically -- look for accretive transactions, buying aircraft, buyback stock or go private. So right now I think you have $67 million approved in the current buyback. Assuming the pace of aircraft acquisitions are what they were in 2016, so say $550 million, I assume then you could do the full $67 million and potentially reload. Is that possible?

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Colm Barrington, FLY Leasing Ltd - CEO [65]

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Oh, yes, because the -- we have all the cash. We can leverage that from the previous question or three or four times to one, so that's why we mentioned that we have the capacity to buy up to $3 billion worth of aircraft, and therefore that does not have any impact on the $67 million in our share repurchase program.

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Scott Valentin, Compass Point - Analyst [66]

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Okay, and then just looking and a credit. I think Steve mentioned Turkey is a concern. Are there any other regions that you guys are concerned about or seeing any issues with? I think Steve also mention low-cost carriers maybe being challenged by the strong dollar. Just wondering what you're seeing in terms of credit.

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Steve Zissis, BBAM LLC - President & CEO [67]

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No, I mean so far, things seem relatively stable. But, if you go across the globe and you look at how fast the dollar has appreciated over the last 12 months, there are countries that pop out at you, right? Obviously, Turkey is one of them, Brazil, other parts of Latin America, certainly Mexico, Indonesia, Malaysia. So you've got to keep your eyes on all of them, Scott, especially the low-cost guys that get the majority of their revenue in local currency. The legacy guys and the international carriers tend to have a big chunk of their revenue in foreign currency dollars and other currencies that are not affected. But some of the low-cost guys are definitely feeling the pinch.

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Scott Valentin, Compass Point - Analyst [68]

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Okay, all right. Thanks very much.

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Operator [69]

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There are no further questions. I'd like to turn the call back over to Matt Dallas for any closing remarks.

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Matt Dallas, FLY Leasing Ltd - IR Manager [70]

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Thank you very much to everyone for joining us today. We look forward to speaking with you again next quarter. You may now disconnect.

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Operator [71]

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