Good day, ladies and gentlemen, and welcome to the Quarter Two 2013 Air Lease Corporation Earnings Conference Call. My name is Julianne, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Ryan McKenna, Head of Strategic Planning and Investor Relations. Please proceed, sir.

Good afternoon, everyone, and welcome to Air Lease Corporation's second quarter 2013 earnings call. This is Ryan McKenna, Assistant Vice President, Strategic Planning and Investor Relations. I'm joined this afternoon by Steve Hazy, our Chairman and Chief Executive Officer; John Plueger, our President and Chief Operating Officer; and Greg Willis, our Senior Vice President and Chief Financial Officer. Earlier today, we published our second quarter results for fiscal year 2013. A copy of our earnings release is available on the Investor section of our website at www.airleasecorp.com. This conference call is being webcast and recorded today, Thursday, August 8, 2013, and the webcast will be available for replay on our website. [Operator Instructions] Before we begin, please note that certain statements in this conference call, including certain answers to your questions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including, without limitation, statements regarding our future operations and performance, revenues, operating expenses, other income and expense, and stock-based compensation expense. These statements and any projections as to the company's future performance represent management's estimates of future results and speak only as of today, August 8, 2013. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our filings with the Securities and Exchange Commission for a more detailed description of the risk factors that may affect our results. Air Lease Corporation assumes no obligation to update any forward-looking statements or information in light of new information or future events. In addition, certain financial measures we will use during this call, such as adjusted EBITDA and adjusted net income, are non-GAAP measures and have been adjusted to exclude charges relating to amortization of discounts and debt issuance costs and stock-based compensation expense, among other charges. A description of our reasons for utilizing these non-GAAP measures, as well as our definition of them and their reconciliation to corresponding GAAP measures, can be found in the earnings release we issued today. This release can be found in both the Investors and the Press section of our website at www.airleasecorp.com. Unauthorized recording of this conference call is not permitted. I would now like to turn the call over to our Chairman and Chief Executive Officer, Steve Hazy.

Thank you, Ryan. Good afternoon, and thank you for joining us today. I'm pleased to report that Air Lease increased its fully diluted EPS to $0.41 in the second quarter of 2013 compared with $0.28 in the second quarter of 2012, which represents an increase of 46%. For the first 6 months of 2013, ALC increased its fully-diluted EPS to $0.79 from $0.54 in the first half of 2012. This also represents a strong 46% increase. Similarly, our top line revenues for the second quarter of 2013 were $208 million versus $158 million in 2012, a 31% increase. For the first 6 months of 2013, ALC increased its revenues to $400 million from $291 million in the first half of 2012, representing a 38% increase. Our industry-leading pretax margin remained steady at just below 32%, at 31.9%, and it was achieved through our core leasing operations. I would like to commend the excellent work of our entire management team and our staff, who have continued the execution robust growth plan and delivered these leading record results. Globally, passenger traffic continues to grow ahead of our expectations, and we continue to see steady demand for our aircraft. IATA, the International Air Transport Association, recently reported that passenger traffic for the first half of 2013 increased 4.8% versus the same period in 2012, with load factors at a healthy 79%. The robust traffic growth is exceeding the growth rate in global GDP and the substantial replacement cycle is further driving demand for our aircraft. We see an increase in product differentiation globally, between legacy carriers who are focusing on premium traffic passengers for medium- and long-haul international flying versus the low-fare, low-cost carriers targeting price-driven domestic and regional passenger traffic. ALC is well-positioned to serve these diverse airline customers in the marketplace.…

Thanks, Steve. Our aircraft lease placements are tracking to plan, with no significant change in overall portfolio lease rate factor. During the second quarter, we saw demand from Europe, the Middle East and parts of Asia. We successfully delivered 10 aircraft from our order book and acquired 2 incremental planes, increasing our fleet to 174 aircraft. We've now expanded our lease portfolio to 78 customers across 44 countries. No single airline customer represents more than 10% of annual revenues. Our average fleet age remain very low at 3.5 years, with a healthy average of 7.1 years remaining on our leases. A cornerstone of our fleet strategy is to order the best balance of the most highly sought after, most fuel-efficient aircraft, from the 70-plus seat turbo props to twin-aisle widebodies with 400 seats and above. This balancing concept prevents us from becoming overly exposed to any single aircraft type that might be impacted by market conditions, such as the A320 in recent years. Further, the surety of delivery slots many years into the future allows us to allocate aircraft to a diversified customer base rather than being -- becoming overly concentrated with single customers in large sale leaseback RFPs. Let me be clear about one point of potential confusion on Wall Street. All aircraft and the prices paid for them contain pre-delivery payments. They're simply part of the embedded cost of any aircraft. We are able to minimize their impact by placing large orders and negotiating down the cost rather than paying for those PDPs and the resulting capitalized interest expense paid by the airline in the final price of a sale leaseback. This strategy has served our company very well and has generated a consistent core earnings stream in past quarters, with a pretax profit margin north of 30%.…

Thanks, John. During the second quarter, our rental revenue grew to $208 million, up 31% from $158 million achieved during Q2 of 2012. This translated to a fully-diluted EPS of $0.41, an increase of 46% over Q2 2012 diluted EPS of $0.28. We continue to achieve pretax operating margin north of 30%, predominantly achieved through our core leasing operations. I would like to highlight that our overall revenues accounted for only 4% of our revenue during the quarter. During the second quarter, we amended and extended our 2010 warehouse facility, reducing the interest rate to LIBOR plus 2.25% from LIBOR plus 2.50% on drawn balances, and reducing the interest rate to 50 bps from 75 bps on undrawn balances. We extended the availability period from June 2015 -- to June 2015 from June 2013 with a subsequent 4-year term-out option. We concluded the second quarter with a highly attractive overall composite cost of funds of 3.74%, which is 31 basis points below Q1. The successful upsizing of our unsecured corporate revolver to $1.7 billion gave us a great deal of additional liquidity, some of which we put to use during the quarter. Our debt portfolio has now grown to nearly 69% unsecured. As you can see, we continue to shift away from secured financing in favor of the unsecured model, and are driving our cost of funds lower with each transaction. Further, our A- corporate credit rating provides us with additional funding flexibility and financial strength. We continue to execute upon our plan to modestly increase our debt-to-equity ratio, but not to exceed 2.5:1. We have successfully constructed a debt portfolio with no sizable maturities in the next 3 years. And our approach to managing our balance sheet will remain conservative by maintaining a large liquidity cushion. As John mentioned in his remarks, our aircraft deliveries are weighted heavily to the fourth quarter and will result in a timing shift of revenue from Q3 to Q4. However, we expect our annualized G&A to continue to decrease as a percentage of revenue. This concludes my review of the financial performance of the company, and I will now turn it back to Ryan.

Thanks, Greg. That concludes management's remarks. [Operator Instructions] Now I'd like to hand the call over to the operator. Operator?

[Operator Instructions] Your first question comes from the line of Michael Linenberg, Deutsche Bank.

I guess, a couple of questions here. Steve, I -- you made a pretty big bet here on the 787-10. What did you see that got you onboard with that aircraft? What are maybe the -- differentiates it from what's out in the market or maybe what is other -- what manufacturers may be planning? If you can talk about that, that'd be great.

Sure, I'm happy to do so. Thanks, Mike. First of all, we looked at the route networks of the major intercontinental carriers and came to the conclusion that the 787-10 can operate effectively in about 95% of the routes that are currently served by aircraft such as A340s, 777-200s, 777-300s, 747-400s and so on. So it can serve a very, very significant portion of all widebody operations, all the way out to 7,000 nautical miles, which equals a little over 8,000 statute miles. Secondly, the aircraft is actually a minimum change upgrade from the -9. And the primary change results in 2 additional revenue generators. One, the 18-foot stretch of the airplane results in about 6 additional rows of seating. So in a 9-abreast configuration, that's 54 more seats; in an 8-abreast configuration, that's 48 seats. So the airplane picks up roughly between 45 and 54 additional seats versus the -9. In addition, in the underfloor compartment, the 787-10 picks up 2 additional large pallet positions or a pallet position plus 4 LD-3 containers. So both the passenger revenue capability of the airplane and the underfloor cargo capacity of the airplane increase significantly over that 787-9, with minimal changes to the aircraft. The result is that the unit economics of the airplane, in terms of seat kilometer cost and the additional cargo capability of the airplane, puts it in a very unique and advantageous position among all of the widebody aircraft. We essentially have an airplane now that has almost the capacity of a 777-300 ER, but with substantially lower trip costs and DOC costs than either seat-kilometer or seat-mile basis. So it's really a quite easy equation, which results in a superior airplane in terms of economics for the airlines.

Yes, that's very helpful. Jumping to a second question here and maybe this is Greg or John. Just looking at your cost of -- your financing costs, getting the composite cost down below 4%, I think 3.74%. Sort of assessing on how the market has moved of late, there's been a lot of volatility. What are your thoughts on the view that maybe we saw the bottom? We saw the bottom this last quarter and as we look at over the next couple of quarters, it seems, if anything, rates are going higher. What are you seeing in the marketplace, Greg?

Yes, the way I see it, I mean, a majority of our floating rate debt is on the short term and I don't think anybody's forecasting a rapid rise in short-term rates. I would like to remind you that our financing strategy targets 70% of our debt being fixed and 30% of it being floating. And as we continue to go on, we're going to go out an issue longer-dated fixed-rate pieces of paper, as you see us access the market in that mechanism. I think that you'll see us do smaller deals to maintain the -- to avoid blips in the marketplace and to access windows along the way. And on the revenue side, I'll let John and Steve comment on this, but we are protected on our forward lease placements through our lease escalators.

Yes, I think the summary, Mike, is that we enjoy -- we continue to enjoy very good access, both to the debt capital markets and the banking group. I think we now have the largest banking group of any publicly traded lessor with well north of 40 banks overall. So sourcing capital at attractive rates, I think, remains a compelling part of our story. But I think, as Greg was pointing to, let me remind something that Steve commented on in his remarks, in that we have interest rate protection clauses in the vast majority of all of our forward deliveries. So whatever the interest rate was at the date of contact execution, if it's higher, whatever that benchmark might be as of the date of delivery, which is when we fund most of those purchases, that's reflected in a revised upward check on our lease rates. So I think the bottom line is I can't -- I have no way of knowing whether we've hit the low or whether that is yet to come, et cetera. But I see this company continuing to have good access to capital with competitive bids from a variety of sources, and can certainly -- we feel confident in saying that we will continue to enjoy some of the lowest cost of capital of any of our publicly-traded peers, if not the lowest cost of capital. I see no change in that going forward, and if all of us end up paying slightly higher interest rates because the overall financial markets move up, so be it. So will the airlines. So I continue to see us preserving what I perceive to be as our continued advantage in the marketplace there.

Yes, the overall success of our businesses is based upon the quality of the assets and not necessarily the interest rate environment, because we are protected on the asset side.

Greg or John, just a quick, on the interest rate protection clause. Just based on what you've seen over the years, are those fairly unique in the industry, or are they more standard or maybe it's hard to call?

I think that the concept of indexing your lease rate to an interest rate is not uncommon. We have been doing it, though, from day one in our company. And I think it's something that the airlines understand, everybody understands you pay for money. The advantage we continue to employ is that, at delivery, our lease rates become fixed and therefore, they are budgeted, known quantities that the airlines can easily work with for the duration of the lease, in addition to providing a lot of flexibility on lease extensions and other things that we can do. So I think that this management team has introduced that concept of putting in an interest rate benchmark many, many, many years ago and we continue to use this from day 1 here going forward. And if there is a -- it's just simply a question of what index do you use, do you put any boundaries around it, that's sort of thing.

But Mike, I also want to emphasize that ALC is focused on new aircraft, new-technology aircraft. So frequently, our lease placements involve lead times and deliveries quite far off from the time we sign the contracts. So we have aircraft that we sign leases for in 2015, '16, '17, '18. So it's important for us to build in that protection because obviously, the interest rate environment will be different 3, 4, 5 years from now. So we've always taken the position, let's be conservative and let's build in those protections. So that whatever the interest rate environment is at the time of the delivery of the actual aircraft, our lease rates will reflect that environment at that time. So I hope that explains our philosophy on this subject.

Our next question comes from line of John Godyn, Morgan Stanley.

Steve, that was just a phenomenal amount of detail on your thought process around the 787-10. I was hoping that you could sort of expand on some of your views on widebodies going forward. And what I was hoping you could speak to is just how you assess the opportunities around A350s and perhaps, long term, the 777X?

Okay, I'm happy to do that. Look, if we look at the composition of widebody fleets when we started the company in 2010, there was a large number of A300-600Rs, A340-300s, A340-600s, even some A340-500s, a lot of 777-200s, very large quantities of 747-400s in the passenger space, I'm talking about, and then obviously, the 777-300ER. What we have looked at is the aging process of these fleets, including the 747-400s, MD-11s, A340s, the older low-growth rate A330s and some of the oldest 777-200ERs, and we looked at what is the requirement to replace those aircraft as we look at between, say, 2015 to 2022. And that's where we see the A350-900, the A350-1000, the various members -- the larger members of the 787 family, the 9 and the 10, and then ultimately the 777X. They will all play a very significant role in replacing these aircraft that were built in the early 1990s and the mid-'90s that will be turning 25 years of age. And so the key participants in this replacement market will be the 777-300ER. In fact, many of our placements are replacing 747-400s. Just to give you an example, at Air New Zealand, British Airways, Korean Air, KLM, we've done recent placements of new 777-300ERs for deliveries next year and 2015. Every one of those is replacing 747s. And then beyond that, we look at these highly efficient, larger versions of these twin-aisle aircraft, the A350s and 787s, as well as the 777s and its new derivatives. They'll continue to play a leading role in replacing the older, aging widebody aircraft. Even with minimal traffic growth, there's going to be a pretty strong demand and there is a strong demand that we're seeing to replace these aging widebody aircraft.

John, let me just add to Steve's comment, what is an overall philosophy that we have taken here from day 1, and that is, Steve used the word replacement 4 times. In our own ordering of aircraft and in these very models that he just elaborated on that are replacing, in our own lease placements, we focus and concentrate our efforts to where our aircraft are replacing prior-generation aircraft, not just growing. And I know there's a lot of discussion in the industry about how much is growth, how much is replacement. But for our own lease placement purposes, we concentrate where there is a replacement component, less on growth. Certainly, we've added aircraft in airlines across the world that have been growth aircraft. But the vast majority of our placements, be it a single-aisle or twin-aisle, are devoted to situations where we are replacing older technology aircraft. We just feel that, that's a better bet, a more sure bet, overall, strategically, for our particular aircraft. And so far, we've been very successful in employing that philosophy and we'll continue to do so.

So if you look at the universe of A340s, for example, ranging all the way from the A340-200, which is the smallest size, the size of an A330-200, A340-300s, A340-600s and 500s, we believe that essentially all of those aircraft will be replaced over the next 10 years. And the A350 family will probably be the primary replacement vehicle for those planes, but on certain campaigns at some airlines, the Boeing product will also be a significant player. So I hope that explains our overall views on the twin widebody aircraft in the years to come.

Yes, that's very, very helpful. And as we continue to get closer and closer to ultimately seeing A320neos in the marketplace, if you could just update your thoughts on what kind of impact do you expect to residual values of older vintage A320s when that finally starts to happen, that'd be very helpful.

Yes. A lot of people on Wall Street generalize about A320s, but you have to like dig a little deeper, below the skin, so to speak. The A320 originally went into service right around the turn of 1990. And the initial A320s were powered by the CFM56 engine, an earlier version of the engine, which is called the 5A version, which went out of production in the latter part of the 1990s. Also, the IAE engine, the International Aero Engine V2500-A1 engine was the power plant in the initial versions of the A320. So I would say the first 600, 700 A320s, we have to put into a different category than the more recently built A320s. And those initial versions that fall into that category I just described, have experienced and will experience degradation of value. But keep in mind that by 2015, a lot of those aircraft will be reaching 25 years of age and somewhere in the vicinity of 80,000 to 90,000 flight hours. So there's a natural attrition of those older aircraft. We've seen in the last 6 months that the younger A320s, and even more particularly, the A321s have actually enjoyed a resurgence in lease rates and demand. And we're seeing pretty good, consistent demand across-the-board from all regions: Latin America, China, Asia, South America, former USSR republics, and even in the U.S. So I think the A320, because of its huge market penetration, and the whole family, will continue to enjoy a very successful future. Obviously, the A319 is still under some pressure as we see airlines sort of up-gauging toward the larger end of the family. And the same thing is true on Boeing. The 800 is doing very well. We're seeing a little more activity on 900ERs, and certainly the 600s and 700s are not enjoying the type of success that they had maybe 10 years ago.

Your next question comes from line of Isaac Husseini, Barclays.

A question for Steve or maybe even John. When we look at your fleet, there are a handful of planes that you bought when you first started the company that are probably approaching or past the 7-year mark. I know that you've sold an A320 in 4Q and you've indicated that you'd probably consider selling more planes as they approach the 7- or 8-year mark, but we haven't seen any sales in this year, I think. Is there any reason behind that? Is there something that you're seeing in the price in the market that's holding you from selling some assets, or just any thoughts on that will be helpful?

No, we've been pretty clear that we -- as we continue to grow the company and age -- again, we're a company focused on growth and earnings, that we have begun and will continue to sell aircraft from our marketplace. Those that you cite that we bought in the 2010 or early 2011 air frame, some of those are candidates. Typically, there is a lot of buying and selling activity in this industry in the fourth quarter. Many lessors rebalance their portfolios at the time. So we actually do have several ongoing projects that could result in some aircraft sales. But at the end of the day, we are aggressive buyers but we're also aggressive sellers. And we want to make sure that we realize our good profitability on every aircraft sold and we think we will. So I would say that we, internally in our own planning, are pretty much right on track with evaluating sales candidates and talking about the sale of a few aircraft. I think we've been very clear from day 1. In 2013, overall, don't expect us to sell 10% of our fleet. I mean, we are -- these are all -- what's great about our airplanes and I think the reason that we're going to get a good price is, if we sell them with a lease attached, which is our plan, these are very good earning assets. And so the biggest question we face internally is what is the best time sell? If we can enjoy a very good yield for another 2 years on these airplanes, is it better for us to sell them now or 2 years from now? So that's more of the question. It's more a question of balance and ultimately, what's going to lead to the best bottom line result for that particular asset, whether we sell it now or a year or 2 from now. But suffice to say that we have ongoing programs, and in fact, receive continuing interest from parties who want to buy some of the aircraft out of our fleet. So from our perspective, I think it's pretty well as we anticipated and planned.

Okay, perfect, I appreciate that color. And then maybe a question for Greg. Just wondering if you can provide some insight or some color on how you guys are thinking about the 70-30 mix of a fixed versus floating? How do you get to that target? What's the thought process behind it?

Yes, we're talking over the next 2 years. The way we're going to approach it is by doing longer fixed-rate issuances in the bond markets, both private placements and the public markets. And that's a balance, right? As we utilize the capacity under our bank revolver, we opportunistically approach the debt capital markets and look to term-out that financing in a prudent manner. And that will also help push out the weighted average life of our debt at the earliest [ph].

I think, if I could just add to your philosophy of how we got to 70-30, frankly, that's been -- for Steve and I, that's been a very long-held tenet and sweet spot from having run this business, this kind of business for 30-plus years, over that long amount of time, through a great degree of cycles, both the aircraft cycle, valuations in market rate, lease rates, but more importantly, to your question, interest rates, through ups and downs and all market situations, it has turned out for us that, on balance, we believe the 70% fixed, 30% floating gives us the maximum bang for the buck. It fixes the vast majority of our debt on the longer-term side yet allows us to enjoy a better margin and lower interest rate funds on a smaller portion of our debt, 30% of our debt. So it is simply nothing more than lessons learned over many, many years and many interest rate environments and market environments.

Also I'd like to add that all of the public bonds that we've placed and also, all of the long-term private placements, as well as our $200 million convertible debt issuance, all of those were at fixed rates. So we have not issued any long-term public bonds or long-term private placements that are floaters. Everything that we've done of significant term in the public markets and the private placement markets have been on a fixed-rate basis.

Our next question comes from the line of Jason Arnold, RBC Capital Markets.

I have a 2-part question. I guess, just first one, to get an update on any changes to regional demand for lease financing that you're seeing, any particular areas heating up or cooling off? And then second, just wanted to see if you could update us on the demand for leases relative to other sources of aircraft financing, in particular, with the ECA changes there, any impact that you're seeing.

When you're saying regional, are you talking about geographic regions?

Geographical regions, yes, Steve.

Jason, in my remarks, I commented that we had seen, this quarter, demand from Europe, Middle East and parts of Asia. That is this quarter, where we have been placing aircraft and executing lease agreements. I would say this quarter, we haven't quite seen as much from China, specifically, I said parts of Asia, that's Southeast Asia primarily, other parts. That doesn't mean that we won't. It doesn't mean that it's necessarily cooling off. Don't forget we had a huge placement about 18 months ago that we announced with the 3 largest single-aisle campaigns at Air China, China Southern and China Eastern, placed 53 aircraft. So we're not out looking to place 53 more aircraft nor do we have them available to place going forward. So I would say the Middle East has really been a strengthening point. We continue to see demand in Europe. I think, overall, Europe as a large equation, seems to be doing as good or better these days. And just in the most very recent past, we've been entertaining a lot more inquiries from South America. So I mean, it continues to be a very broad-brushed global business. And there's no real significant compelling change in the sea winds, really in any different jurisdiction. It's just that this quarter, based upon what we had to offer and what's out there in the marketplace, it was mainly Europe, the Middle East and parts of Asia.

And we have placed a large number of Boeing 737-800s in Latin America. Those aircraft will deliver in 2014 and '15. So all regions are certainly active. There's ongoing campaigns literally everywhere. We're even seeing some activity in the U.S., where we think we can bring some valuable assets into fleet planning equations of some of our large airlines in the U.S. So across-the-board, I think there's good healthy activity. Airline profitability is kind of okay. I mean, it could be better, but it is more positive than negative. And that's giving the airlines encouragement to continue this replacement cycle that we're benefiting from for the next 10 years.

Okay, great. And then, I guess, just one quick follow-up on the decision-making process for the Pratt & Whitney versus the Leap on your 30 firm neos, just maybe a little color there would be interesting.

Yes, basically, we have on order currently 50 A320 family neos, the majority of those are A321s, with Sharklets. Again, we did that with a lot of thought and analysis. There's a large 757 replacement market. That aircraft is out of production. So we're seeing a lot of demand for the A321, and even more particularly, the A321neo with the added range and the improved performance and fuel burn on the airplane. So we're seeing good activity across-the-board in those aircraft types. As far as the engine selection, we have had a very, very thorough technical analysis of these engines. And we talked to a lot of our airline customers. And based on that, we elected to have about 30 of our neo aircraft powered by the Pratt & Whitney new-generation geared fan engine. And we continue to be a solid loyal customer of General Electric across-the-board on our 737 NGs, on the 737 MAX, on the 777, even some of our A330s, and then of course, a proportion of our neo activity. As John said, we try to balance our portfolio so that we appeal to the largest number of prospective airline customers. Yes, we also have GE exclusively on our Embraer E-Jets and we have 32 of those.

Your next question comes from the line of Arren Cyganovich, Evercore.

I was wondering if you could talk a little bit about your thought process around placements. You're 100% placed, I guess, through 2014 and 66% placed for 2015. Those are pretty far lead times with respect to potential improvements in the global economy. Do you end up leaving any kind of economics off the table with those kind of lead times, and how do you balance how far you go out on your forward leases?

Yes, just a quick comment. When you're ordering new aircraft, lead times do become much more important simply for one reason: those aircraft have to be built to a specification. And with the supply chain constraints that face both Boeing and Airbus, there is a certain minimum time in advance, which you really do need to specify the aircraft because you got to order seats, galleys, in-flight entertainment equipment. And those lead times have become a little bit longer. So part of this is driven by simply the industrial requirement that says you really do need to specify how you're going to build these aircraft. And it's a little bit less time with the single-aisle, a little bit more time with the twin-aisle aircraft. Twin-aisles, you kind of like to be there with an 18-month or so or better. So part of the answer is you don't have the luxury of waiting until 9 months before delivery or 8 months before delivery to negotiate a lease if you're going to customize that aircraft to the airline's specification. You can build a generic aircraft, but then that is going to force you to change that aircraft, assuming you deliver it, to whatever the airline [ph] wants. That's going to entail a lot more costs. To the overall question, do you leave any money on the table? I think our financial results would indicate the answer is, I think, probably no. But it is fair to say that we, as a management team, for the past -- more than 30 years of running this business, find a lot of value to be able to put the aircraft to bed with comfortable lead times that assure the procurement of all of the internal parts of the aircraft in a normal course-of-business fashion, and to have visibility from a revenue perspective and from a customer exposure perspective on exactly where these things are going. Generally speaking, what we find is those that wait too long, suffer too much risk. And there have been many sleepless nights by other leasing companies when they've been waiting way too long and have missed lead times on their quest for obtaining 1 more penny in yield, and usually that's not a successful strategy.

Just as a point, I think the long lead times make a lot of sense and add to the visibility. So I was just curious in terms of your thoughts and that's helpful. But the other question I had was that the -- back to the interest rates. In general, when you have the rising interest rate environment, is it naturally a good thing for lease rates and your overall profitability or is it more of a wash, as your financing costs tend to rise along with those lease contracts?

There's pros and cons. One of the pros is that if the cost of new aircraft goes up because of escalation or the cost of financing new aircraft goes up because of higher interest rates, it results in a more robust value on used aircraft, good used aircraft. And so therefore, the residual values of existing fleets tend to be performing better. The lease rate market does follow interest rate trends, because the largest single component, cost component, of a lease is the interest expense. And then of course, you have the depreciation, which is a function of the aircraft acquisition cost. So they do move in parallel. And if an airline has to acquire an airplane, they have 2 choices: either finance it or lease it. If you finance it, you're dealing in the same interest rate market as the lessor who has to finance the aircraft, unless they just buy it for cash. So we find that it's kind of neutral. And the downside is, if we do a long-term lease for delivery 3 or 4 years down the stream and we simply fix the rate and close our eyes and pray that everything will be fine, that is not a strategy that we pursue. As we described earlier, we build in adjustment factors both for the aircraft escalation and costs, as well as interest rate indexes, that we agree with the airline ahead of time, that will be then captured at the time of delivery. So we take a very conservative, maybe overly conservative, approach on this. But we feel that's the best way to protect our shareholders' interest.

I will say, from a historical perspective, if interest rates start going up a lot, what I think history would show is it does tend to drive airlines more towards the leasing equation. They don't want to lever their balance sheet as much and they're not quite certain of the future market. But on the downside, you want to have healthy customers, to the extent that they have higher cost of financing and that deteriorates their financial performance, that's not good either. But I would just say, strictly from a demand equation point of view, we have a very, very simple phrase that's probably overly simplified, admittedly, but I'll offer to you anyway. We've talked about in various roadshows, et cetera. A simplified way to look at it is, in the good times, the airlines need our delivery positions; and in the bad times, they need our balance sheet. And that's actually more true than not true. So from a demand perspective, higher interest rates, I think, tend to drive people more towards the leasing side, but it also compresses your customers' earnings.

Your next question comes from line of Scott Valentin, FBR Capital Markets. Scott Valentin - FBR Capital Markets & Co., Research Division: You mentioned earlier that the A- rating by Kroll is -- I know you've been talking to other rating agencies. Any time line potentially when maybe we'll hear something from them?

No, I think we're not going to offer a time line, but I think it's safe to say that we have been -- we've been offering them information and data. We have maintained -- and with our second quarter results, we'll engage in a dialogue with them. And -- but I think we always fall short of projecting forward when they're not -- we might have another rating agency opinion on us. But I think our dialogue is good and I think I would only ask for 2 things. Number one, every quarter that we conclude successfully, which I think this another quarter example of, is another quarter that we're older and that removes further any question of the fact that we have only been in business just for 3 years. I think that's been an issue up till now. I think that issue is going away. And then, it's just a matter of continued execution and good financial performance. Scott Valentin - FBR Capital Markets & Co., Research Division: Okay. And just as a follow-up question. It seems like widebody aircraft have become maybe more popular among lessors. I'm not sure if that's -- is that a reflection more of values holding up a little better than some of the narrowbodies or do you think that's more a reflection of airline demand?

I think it's more airline demand, but we don't really see a shift. We continue to have airlines exhibit a large appetite for single-aisle aircraft, both in the Boeing and Airbus camps. We're seeing a lot of campaigns on single-aisle aircraft across the whole geographic spectrum. And then as I mentioned earlier, if you were on the call, we do see a very large replacement market for Boeing 747s; A340s; some of the older A330s, particularly the A330-300s that are older, lower gross weight; and even some of the oldest 777s. So it's just the natural cycle, and production rates of the A330 family and the 777 family are currently at all-time highs, at almost 20 aircraft a month, which is strong. And then of course, the 787, Boeing is working to achieve 10 airplanes a month by the end of the year. So you're looking at over 300 aircraft just among those 3 types, which is clearly a reflection of airline demand. We don't really see any new widebody wide tails, and the financing environment continues to be there, both with the export credit agencies. A lot of the European banks have come back strong into the aircraft financing sector. We see more Asian bank activity. So financing is there, and the demand for the airplanes is certainly there.

Your next question comes from the line of Jamie Baker and Mark Streeter, JPMorgan.

Actually this is Jon Rau on behalf of Jamie and Mark Streeter. If you guys -- if you were an economist, what would you say about the state of the markets for leases on aircraft that you lease? For example, price, terms and funding costs. Are they improving, neutral or deteriorating on an economic basis including all considerations.

Yes, we can only speak to our performance. If you track our results, you'll see a high degree of consistency in lease rate ratios to our capital being employed. We really haven't seen a lot of deviation since Q2 of 2010, when we took delivery of our first aircraft on May 19 of 2010. We've seen a lot of consistency. As we mentioned earlier, there's some correlation between interest rates and the way they behave versus lease rates. But I think if anything else, we've shown a high degree of stability in the lease economics, certainly with the aircraft types that we have invested in.

Okay. And as a follow-up, you guys have identified E-Jets and turboprops as having some of the best lease rate factors. And we were wondering if there's any change in that regard and whether we should start to expect those aircraft playing a somewhat larger role in the order book going forward?

Well, these aircraft have been very successful for us. We currently have 46 airplanes in that category, but they represent a very small fraction of our total asset base that's employed. And they've been very useful in introducing us to airlines that are ultimately stepping up to the jet age, to larger aircraft. But we don't really see a change in our philosophy in terms of the percentage of capital we employ. In fact, the primary aspect of our future order base is on the Airbus and Boeing products. As John said in his remarks, we've taken delivery of our last E-Jet. We only have 5 or 6 ATR 72s still yet to deliver. So they'll be a sound component of our portfolio. But certainly, at this point in time, our CapEx is focused on the new-generation Boeing and Airbus products and less on the smaller regional aircraft. We've done the regional thing. I think our timing was very well executed, and we established a strong footprint in that market. It's worked out very well for us. But the bulk of our expansion in the coming years is on the new Boeing and Airbus products. And our disclosures are quite clear on that.

Your next question comes from line of Glenn Engel, Bank of America.

This is actually Dave Van Der Keyl in for Glenn. Most of my questions have already been answered, but just one on your stock. A couple of your publicly-traded lessor peers have tapped the equity markets in recent months to take advantage of some investment opportunities that they're seeing. So I'm just wondering what Air Lease's propensity is to do something similar?

We have no plans to access the equity markets. Our debt-to-equity ratio is just a tad over 2:1. We have the largest paid-in capital of any of the publicly-traded lessors. And so we have a very strong capital base and we believe our common equity, coupled with our retained earnings that we generate every quarter, is sufficient to take us through this growth cycle. So we have no plans at this time to issue any other new form of common stock, other than if employees or executives exercise stock options. But that would be a very minor contribution in terms of capital.

You have no questions at this time. I would now like to turn the call over to Ryan McKenna for closing remarks.

That concludes our call for today. Thank you for your participation, and we look forward to speaking with you next quarter.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.