Good day, ladies and gentlemen, and welcome to the Quarter 2 2014 Air Lease Corp. Earnings Conference Call. My name is Tivan, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Ryan McKenna, Vice President and Head of the Strategic Planning and Investor Relations. Please proceed.

Good afternoon, everyone, and welcome to Air Lease Corporation's second quarter 2014 earnings call. This is Ryan McKenna, and 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 2014 results. A copy of our earnings release is available on the Investors section of our website at www.airleasecorp.com. This conference call is being webcast and recorded today, Thursday, August 7, 2014, 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 7, 2014. 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. 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 diluted earnings per share to $0.58 in the second quarter of 2014 compared with $0.41 in the second quarter of 2013, which is an increase of 41.5%. Our top line revenues for the second quarter of 2014 were $256 million versus $207 million in 2013, an increase of 23.3%. This implies a run rate in excess of $1 billion in revenues per annum. ALC's pretax income in Q2 of 2014 was $95.6 million versus $66.3 million in the prior year, which is a 44.3% increase in profitability. We're very proud to report that in 4 short years, we have now eclipsed $10 billion in total assets. With the continued strengthening of our investment grade credit profile and our focused efforts in reducing our cost of funds, we lowered our overall composite borrowing rate to 3.59%. The overall health of our industry continues to improve as passenger traffic meaningfully outpaces global GDP growth. For example, yesterday, IATA, the International Air Transport Association, reported very strong first half 2014 year-to-date RPK growth of 5.9% and ASK growth of 5% versus 2013 levels. Additionally, load factors were healthy at 79.3%, according to IATA. When the overall picture of passenger demand is so strong, coupled with efficient load factors, we have an environment suited for strong airline results broadly. While there will always be various winners and losers in the airline business around the globe, our business prospects are not linked to the health of any single carrier, but rather the overall demand environment for aircraft and our ability to profit from these fleet movements. We strongly believe that these macro trends are leading factors, generating the continued rising demand for our new…

Thanks, Steve. Let me just begin by thanking all of our employees for their continued excellence in performance and driving the results of our company. At ALC, everyone is a shareholder, employees, officers and board members. And as such, we are fully aligned with our shareholders. Furthermore, I want to thank our customers and suppliers and financiers for their continued unwavering belief and support of ALC. During the second quarter, we delivered 13 aircraft from our order book and sold 2 aircraft from our fleet, ending the quarter with 207 aircraft in our portfolio. Additionally, we have a managed fleet of 12 aircraft on behalf of third parties, and the strategic focus for our management team is to grow this part of our business. As we look forward to Q3, we have 10 aircraft scheduled for delivery. The majority of which deliver in September, including 2 Boeing 777-300ERs that deliver in the final 2 weeks of that month. Regarding sales activity, at the time of the last quarter's earnings call, we expected that our aircraft sales orders to close in the third and the fourth quarter. Subsequently, our motivated buyers and our team were able to accelerate some of those closings into Q2. Our team works extremely hard and is very motivated to capitalize on good sales for the company, and we've achieved that. We remain focused on opportunistic sales of some of the smaller number of older aircraft in our fleet during the back half of the year, but don't expect volumes to exceed the levels from the first 2 quarters. As time passes and our fleet continues to grow, more aircraft in our fleet will reach the 78-year range and become candidates for sale. But for now, there is kind of minimal supply in our fleet to have…

Thanks, John. During the second quarter 2014, we recorded diluted earnings per share of $0.58. This was driven by rental revenue, increasing to $243 million during the quarter versus $206 million in the prior year. We also recorded $13.6 million in gains from aircraft sales and trading activities in the second quarter. Our rental revenue is linked to the net book value of our fleet at the beginning of the period and is positively affected by capital expenditures made during the quarter, and is partially offset by aircraft sales activities. Depreciation grew to $81 million during the quarter and is also tied to the asset base of the company, and is linked to capital deployed in aircraft sales activities as well. The second quarter was our largest quarter in terms of capital expenditures for the year. Despite this heavy volume of capital expenditures for the delivery of new aircraft, our debt-to-equity ratio only ticked up to 2.39:1. Our debt-to-equity ratio has quarterly cyclicality that matches our delivery stream, but has no impact on our overall target ratio of 2.5:1. In July, ALC completed an amendment and extension of our secured warehouse facility. Once again, we shrunk it to capacity by $250 million to $750 million, lowered the rate to LIBOR plus 200 basis points and extended the final maturity to 2020. This is consistent with our strategy of reducing the secured portion of our financing and continuing to drive interest expense lower. ALC is in a healthy financial position. Currently, we have $1.6 billion of liquidity, which was supplemented by $377 million of operating cash flow and sales proceeds in excess of $200 million during the first 6 months of the year. Our cost of funds ticked lower during the quarter, just 3.59%. We continue to make progress reducing the secured debt on our balance sheet, now only 12% of total assets, which is in line with our stated target of 10% secured debt to total assets. When looking at our debt portfolio, 80% of our debt is unsecured. Additionally, we finished the quarter with 66% fixed rate debt, which is on target for the 70% fixed rate debt that we stated as our goal when we founded the company. This balance has been achieved without using rate hedges or swaps. Now all of these metrics contribute to our strengthening in investment grade credit profile. This concludes my review of the financing activities of the company, and I will now turn it back over to Ryan.

That concludes management's remarks. For the question-and-answer session, each participant will be allowed one question and one follow-up. Now I'd like to hand the call back to the operator. Operator?

[Operator Instructions] And your first question comes from the line of Jamie Baker and Mark Streeter with JPMorgan. Mark Streeter - JP Morgan Chase & Co, Research Division: John, a question on widebodies. So if I heard correctly, you said the 6 777s ordered at the airshow are already placed?

That is correct. We previously ordered 15 777-300ERs. Those deliveries began this year. We've already delivered 3 of those aircraft, 2 to British Airways, 1 to Air New Zealand, and all those aircraft are placed. And we have demand for additional 777s from a number of large foreign intercontinental carriers, and we've already placed those 6 aircraft to long-term leases. So we have a total of 21 new 777-300ERs, in addition to the 6 that we had at the beginning of the year. Mark Streeter - JP Morgan Chase & Co, Research Division: And I think, recently, we weren't surprised when you sold out the 15, that you ordered the 6. What I am surprised is how quickly you've been able to place those. So how should we think about your appetite for spec 777s, if you will? Does that mean another order is forthcoming? Because you have no 777 inventory to offer your clients at this point.

That is correct. Four of these 6 aircraft went to 2 different airlines, which we'll announce shortly, and they're replacing Boeing 747-400 airplanes. And 2 of the aircraft are going to an airline that's replacing older 777s.

Mark, let me just add that the course of the ordering of 15, we already had -- we're talking with airlines over -- for demand for more than 15. And actually, it just kind of all flowed as a progressive matter so that these incremental 6 were kind of a natural easy tag on. We've kind of been talking to Boeing as we did the original 15 about adding these further units. So it was kind of a progressive dialogue, but as we've said in our remarks, we know that marketplace well, that airplane still continues to dominate the ultra long-haul twin-aisle widebody market. So it was a very easy thing for us to do.

But to answer your question about additional aircraft, we also used the acquisition of these 6 incremental airplanes to retroactively reprice the 15 that we ordered previously. So if you look at the overall fleet of 21, they'll be better priced, everyone of them, than the original 15 that we've acquired, of which we've already taken delivery of 3. We have 2 more deliveries in September and then we have quite a few deliveries next year. As to ordering more 777-300ERs, we believe it is prudent for us, at this point, not to order any more 777-300ERs, primarily for 2 reasons. Very soon, we'll begin to start taking delivery of our 787-8 -- 787-9s, and 10s, A350-900s, and also Boeing announced a new 777X late last year. So we feel, looking at our total portfolio composition, that these number of 777-300ERs are a good ratio in our overall widebody fleet composition. Mark Streeter - JP Morgan Chase & Co, Research Division: Great. And then just as a follow-up to that, on the A330, Steve and John, you spoke a little bit, I think, at the press conference at the airshow. Can you maybe just add some more color on why the change of heart versus your original comments years ago about how the A330 reengineering wouldn't work way back in the day? And how -- why in 2015, '16, '17, why it works better now? Has your view of the widebody market changed? Or your view of how the manufacturers are developing airplanes and taking risk in terms of technology? What's, fundamentally, is the reason why you had that change of heart?

Okay. Well, first of all, there is no change of heart. I think what you have to understand is that the original A350 design had a GE engines and had a very, very minor set of modifications to the air frame. So it's basically a reengined A330 with GE engines, not much more. This particular airplane has a significant number of aerodynamic changes, a redesigned wing, new winglets, a lot of upgraded systems and the newest Rolls-Royce Trent 7000 series engine. So it's a vastly different airplane to an observer of the airline industry and people that understand these airplanes. It is not the same airplane that we rejected back in 2006, which we considered to be the silver medalist in the widebody sector. We also believe that there was diminishing potential for the A350-800. And this airplane was a much better candidate to replace older 767s, a lot of older A340s, a lot of old A330s than the A350-800. So we believe that this move actually strengthens the Airbus widebody product line with the A330-900, the A330-800 and the A350-900 and 1000. It's a much more complete, it's a much more desirable set of products versus what we are looking at back in 2006 when the A340 were still in production and the A350 design morphed into something completely different. Mark Streeter - JP Morgan Chase & Co, Research Division: Great. That's very helpful. And Nish just has one quick question. Nishant Mani - JP Morgan Chase & Co, Research Division: Yes. Just a quick follow-up guys. It was recently reported that Lion Air entered the leasing segment in China by leasing out 3 737-800s. I just want to get a sense of how you think about that as the incremental competition and whether or not this could drive down potential lease rates down the road?

Yes. Short answer is no. There had been airlines in the past that have tried to enter the leasing space and with very mixed results, mostly negative results. So the bottom line is, no, we don't deem it a competitive threat. There is only, really, a handful of the 10 strongest lessors in the world. And it takes a variety of leasing relationships and a very low cost to financing to really drive successful results. So any further entrance by Lion Air or others is just simply another competitive spot on the radar, but it doesn't change or drive any fundamental decisions or changes in business practice nor concerns from our perspective.

Yes. I think the Lion Air transactions in China is more of a reflection that Lion Air ordered more aircraft that they could utilize in their various airline units in Indonesia, Thailand, and Malaysia. And their difficulty in getting bilateral traffic rights or airport slots to expand their network at the pace that they originally projected. So in effect, you created a surplus of units within their order book, which they've decided to redeploy by leasing them out.

I would also speculate that, I believe, personally, that to the extent there is softness in those -- in that specific order book for Lion Air or any other airlines that have ordered vast large quantities, I suspect that the manufacturers have already taken that into account in trying to address some of their order -- some of their backlog in excess booking. I mean, it still -- as we commented, there's still the number of months in '15 and '16 where there are more aircraft promised for delivery than they're currently is the ability to produce aircraft for delivery. So I think it's all going to sort itself out over time.

Your next question comes from the line of Michael Linenberg, Deutsche Bank.

Steve, I want to go back to the comments. You talked about when you're announcing the various orders that came out of Farnborough, you talked about the opportunity to reprice, I believe, this was with the Airbus aircraft, reprice an existing order, I think is what I heard. Can you expand upon that? Talk about that dynamic?

As you recall, originally, and we ordered 50 A320 NEO aircraft. I should say A320 family of NEO aircraft. And we've seen significant demand for the -- both the A320 NEO and the A321 NEO. And as we've always said to the Street and our investor community, we generally order about half of the airplanes that we believe we can place. So we came to the conclusion that we could see a market for Air Lease alone, of placing between 220 and 240 A320 NEO family aircraft. So we began negotiations with Airbus, actually, late last year to see if we could top up our order, get some additional early delivery positions, fill in some of the blanks that we felt we didn't accomplish in the first 50 orders. And also by adding these additional 60 airplanes, most of which will be A321 NEOs with the Sharklets. We're able to reprice the original 50 aircraft to take into account that it's now much larger overall transaction composed of 110. So it's sort of economies of scale and the demand for the type of aircraft allowed us to improve the economics for Air Lease.

Yes. Mike, also, it's not uncommon -- when you place large orders, Mike, it's not uncommon these days to have a benefit in repricing.

It seems like bottom line is that there's not a lot of guys who can do that. I mean, this is -- it takes a certain type of customer whether it's aircraft lessor or airline that can actually can do these. So this is...

Yes. The type of customer that Airbus and Boeing respond to are the customers that, A, show up at every delivery, never cancel an order and are able to redistribute these airplanes through the leasing medium, to airlines all over the world, bringing in lots of new customers that heretofore did not operate those type of aircraft either Boeing or Airbus. So I do believe we get special treatment. We deserve it and we're there in hard times and good times.

Yes. Fair point. My second question, Steve, this is to you. The A330 NEO, so it's been launched single power plant. Is that a concern going forward? I think GE came back. I think they're the ones who came back and just said the R&D expense to come up with an engine was just too much, I mean, what's was going on here? I think back to the days of the 76-300 or back in the early days where you had multiple engine types, is this a trend or is this a one-off? Is this something that we should be concerned about? Because I think if you had your druthers, you'd probably want multiple engine options on widebody airplanes. What's your thoughts on that?

Yes. Absolutely, Mike. I think, obviously, we prefer choices. When the A330 family came out in 1993, 1994, now 20 years ago, there were actually 3 engine options. The Pratt & Whitney 4000, the CF6-80E2 and the Rolls-Royce Trent 772B. So the airlines had 3 choices. This did fragment the market considerably. However, if in the last 5 years you look at the most successful airplanes, for example, the 777-300ER, has been the best-selling large widebody aircraft in the last 5 years, there's only a single engine option, which is the G9115B. On the 787, yes, we have a choice and that is attractive, I think, for the airlines. I think Airbus and Rolls-Royce came to the conclusion that to achieve the optimal pricing to accelerate the R&D program allowing them to introduce this airplane, hopefully, by the end of 2017, the path of least resistance was to have one good engine on this airplane. Also, make a note that in the recent years, Rolls-Royce has been the dominant market share leader on the classic A330, the current generation A330s. On the 737, both the new generation and the MAX, we also have a phenomenon of only one engine type. So I think we need to look at this from sort of a holistic point of view that it is a trend, it does cut down on the research, development and certification costs. As a lessor we like choices, but at the other side of the coin, we also want to drive down the capital cost of these airplanes.

Your next question comes from the line of Moshe Orenbuch with Crédit Suisse. Moshe Orenbuch - Crédit Suisse AG, Research Division: I was hoping you could add a little bit of color to your comment about some airlines being under ordered and maybe flesh that out in terms of where and what criteria that might represent. Because I think, in general, the concern is kind of the opposite, and so I think that's a pretty provocative statement.

Well, I think -- thanks. Both on the widebodies and on the single-aisle aircraft -- let's look at the A330 NEO we just ordered. There are some 38 airlines, which we assessed globally, along with Airbus, that currently operates either a 767 or an A330 or an A340 who have not yet ordered any replacement aircraft, 0. And those airlines, there's several in Asia, there's several in Europe, a couple in South America, it's pretty much across the globe. Similarly, on the A320 NEO family, a similar analysis, which we did now -- it's probably 1.5, 2 years ago, showed almost double that amount of order of airlines that have current 737 generation aircraft or current A320, 21s, that have not ordered. I'll give you a specific example. Korean Airlines, for example, is one of the many airlines that are still conducting an analysis of their single-aisle fleet, going forward beyond 2017 or '18 who have not yet made a fleet decision. So while I understand and appreciate that the current activity and talk is about over [ph] ordering, et cetera. The fact is, there are still a number of airlines that have not made a decision on replacement new technology aircraft. We take that very much into account. And in fact, our order book that we've now achieved, specifically enables us to provide aircraft to those airlines much in advance of what they could get today from manufacturers because, frankly, they're late.

I'll give you 2 other significant example just to amplify what John said. Air China, which is one of the largest airlines in Asia and the flag carrier for China, has not ordered yet any aircraft in the 787 or A350 category, nor have they ordered any NEO A320 family aircraft or 737 MAX aircraft, even though they have one of the largest fleets of A320ceos, many of which are aging, as well as 737 classic and 737 NG aircraft. So another airline is Dragonair out of Hong Kong that operates a large fleet of aging A330s, A320s A321s. The #1 carrier between Hong Kong and mainland China has not ordered any new widebody aircraft to replace these aging A330s or any new single-aisle, either MAX or A320, 21 NEO aircrafts. So we could spend the next 4 hours where we could list for you all of the airlines that have sort of fallen behind in terms of ordering new generation aircraft. And many of these airlines, because of the long lead times to get a new plane on the direct order, will be utilizing the operating lease from Air Lease to satisfy their fleet modernization requirements. Moshe Orenbuch - Crédit Suisse AG, Research Division: Great. And just as a quick follow-up. You've got 2 aircraft sales and you alluded to this a little bit earlier in the remarks. Any kind of sense as to how we should think about the number of sales as we kind of move into the back half of this year and 2015 on a...

We have additional sales in progress in the third and fourth quarter. We've already contracted for a number of those sales. We are not going to give you exact points on when those aircraft sales will close, but as we indicated in our first quarter earnings call, the second half of the year will contain used aircraft sales from our portfolio.

Yes. I think, I specifically commented in my prepared remarks though, that in terms of the volume, we're a young fleet, the first 3 or 4 years we've been growing our fleet to try to generate these earnings. And we don't have a whole lot of aircraft that are 7 to 8 or more years of age. Having said that, I specifically commented that we certainly wouldn't expect a greater volume of aircraft sales than you've seen in the first couple of quarters.

Your next question comes from the line of John Godyn with Morgan Stanley.

John Godyn. Steve, I wanted to ask a little bit about the competitive environment out there for aircraft. And what I'm getting at here is, I wonder if the manufacturers broadly are maybe responding to some of these cycle concerns that we've seen in the news by getting a bit more competitive on the prices that they're offering? You mentioned that you're able to retroactively reprice some contracts, I'm just -- hopefully, you can elaborate on what that dynamic bigger picture has been like of late?

So we have not seen any discounting that would alarm us to airlines or lessors. The repricing that we encountered had to do with more than doubling the order for our A320 NEO family aircraft. It was not a repricing on a standalone basis, neither Airbus or Boeing would have been receptive if we had gone back to them and said, we'd like to have a lower price on our existing airplanes, and thank you that's what we want to accomplish. The repricing was accomplished in the context of significantly increasing the number of orders we have and we were able to demonstrate that we've already found customers for a lot of aircraft that were placed under the original order as we indicated earlier in the case of the 777. So the manufacturers responded to us because of our excellent track record at placing aircraft. It was not a result of a price war between Boeing and Airbus.

Got it. Very helpful. And I'm curious, some of the volatility that we've seen at some of the global airlines and you sort of described this smoothing out process. I'm curious, does that introduce opportunities to perhaps pick up any aircraft within the next few years in the backlog? Any holes in the backlog that you think might come from that or interesting? Or do you feel like the backlogs are still so tight that we wouldn't see any surprise new orders or new slots in the, I guess, medium term here?

John, you're spot on. We actually are hoping that we can take advantage of exactly some opportunities that are going to be there. We think they will be there. But yes, I mean, we actually look to that as a good potential future growth for us on an incremental basis.

But let me also mention this to you. This is a cyclical business. You remember, in the last decade, we had 60% of the U.S. commercial airline industry within Chapter 11 bankruptcy, including United, Delta, Northwest, US Airways. At that time, airline's like Lufthansa, Air France, Cathay Pacific, Singapore Airlines were reporting record earnings. So we had a North American industry that was really in bad shape and we had foreign airlines that were reporting record revenues and earnings. Today, we have the very same airlines that were in bankruptcy not long ago, reporting record earnings, buying back their stock, declaring dividends. And some of the well-known legacy international carriers are struggling in terms of maintaining a high-profit margin either because of low-cost competition or the Gulf carriers encroaching into their markets. One of the reasons we thrive is we're able to accommodate and fill these dynamics in the market place. If everything was predictable, stable and ready at all times, the function of Air Lease would be much diminished. So we actually thrive on this instability in the industry. And it's one of the things that gives us additional opportunities to place aircraft, to reallocate assets, reallocate resources and maximize our earnings and buy assets when -- under appropriate conditions.

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

In your -- in order to be a launch customer for the A330 NEO, what do you think about in terms of the risks associated with being a launch customer? And how do you set the agreements so that you don't have to face the risks of like we saw with the 787 initial technical problems and delays in deliveries, et cetera.

Let me address that. First of all, as to A330 NEO, specifically, I just want to remind you we're in an MOU stage at this point in time. We've not signed definitive purchase agreements. And in those definitive purchase agreements are many, many things in terms of product performance guarantees and that sort of thing, which we're in the process of signing out. But having said that, stepping back to the bigger picture, we've launched many, many, many newer aircraft over many, many decades in time. I think we're pretty well experienced in that. You'll know it, for example, you cited the 787, well, we stayed away from the 787 at Air Lease Corporation, we are responding to the market. We only have a -9s and now we're a launch customer on the -10s as well. We think that Boeing has learned a lot in the painful process of the 787-8. We believe we're going to have no impact to our 787-9 orders as well. And Airbus has been very, very diligent and we've been trolling very closely on the final design development and certification now over quickly coming up on the A350-900. If anything, the A330 NEO, along with the A320 and 21 NEO is low risk. It's very low risk because it's largely the same -- it's not an all-composite aircraft. Steve mentioned they're expanding on the A330 NEO, the wingspan is being expanded by 4 meters, there's some aerodynamic improvements and there's a new engine. But from a risk point of view, that is minimal. As now the A321 and 20 NEOs have shown [ph]. So I would actually say this is probably one of the lowest risk introductory launch platforms that we have been on.

Also, the engine on the A330 NEO is basically the same engine that as currently exists on the 787 with a bleed-air modification for the pressurization and air-conditioning system. But the basic engine, the fan, the core, the hot section, the turbine section it's the same engine that's on 787s flying today.

That's helpful. And then just a quick follow-up. The -- I missed the timing of the second half delivery split between 3Q and 4Q.

Well, we didn't really talk about the timing. What -- the comment that I made was that we...

What we said we have 10 deliveries.

We have 10 aircrafts scheduled for delivery. The majority of which deliver in September, including 2 777-300ERs, that deliver in the final 2 weeks of that month. And I made that comment, specifically because that points to the timing of a pretty large amount of CapEx. The revenues from that -- from those airplanes, obviously, if they're delivered to the back half of last week of September, they're not going to be there for the whole quarter, and that's why I made a comment.

We took 13 new aircraft in Q2 and we have 10 new aircraft scheduled for Q3. And currently, we don't anticipate that those aircraft will not deliver.

Your next question comes from the line of Helane Becker with Cowen.

I have 2 questions. One is on capital allocation. I really appreciate the dividend but I was wondering if you'd given any thought to share repurchase programs?

Right now, as you can see, our profit performance is in the region of mid-30s. In other words, for every dollar of revenue, this company can generate at least 35% pretax profit margin. I do not believe at this time, with the CapEx program we have going forward over the next 5 or 6 years, that the best use of our scarce capital would be to buy back shares. What I can say in a positive way and we've already articulated this on Wall Street is we have no plans, at this time, to issue any equity in the public markets or in a private placement other than through the current management stock plans and potentially exercise of stock options. So we are going to double the size of this company over the next 5 or 6 years. And so we feel the best deployment of our capital is buying airplanes that produce these excellent results for our shareholders, rather than buying back stock. Our modest dividend was designed to bring in institutional retail investors that otherwise will not buy stock that does not pay dividend. So that was a primary motivation.

Got you. Okay. That's really fair. And then for my follow-up question, how should I think about rising interest rates with your -- with the mix of your business -- with the mix of debt you have in the balance sheet, the floating rate versus fixed rate debt? As rates go up, how do you recover that increase in lease rates?

Well, actually, that's a built-in feature, the vast majority of our forward aircraft deliveries. When we negotiate a future lease with an airline for delivery, for example, in '15, '16, et cetera, et cetera or beyond, we have some deliveries in '17 on our 777-9s, for example, we base the lease rate based upon some mutually agreed-upon financial index and that varies and that's a subject of negotiation with the airlines, whether it's a 7-year forward swap curve, 10-year [ph] treasuries some index that we all agree to and we say your lease rate is based upon that. And if that delivery, the actual -- that financial index is higher than what it was when we struck today, we actually have a very specific formula that says for every basis point that, that index is higher, year lease rate goes up Y amount. So from a revenue coverage yield perspective, we believe that feature really protects us quite a bit on a go-forward basis. And that's not adjustable. Once that rate is fixed at delivery, that is the lease rate fixed over time, over 12 years, 8 years, 12 years. And the other thing I might add is since we are in a low-interest rate environment and since we have a situation, fortunately, where basically we have more demand than supply, I might add that, that rate adjustment, I think, in every single case, is only a one way rate adjustment. And we take the position with the airlines, okay, in order to get you this really, really low lease rate, really, competitive lease rate, fine, we get the benefit of any downside in the interest rates, but you take -- you help us and you have to give back to us and you have to increase your lease rate in the event that we're in an increasing lease rate environment.

The other aspect is the way we deal with our current debt [ph] book is that we're targeting 70% of our debt to be fixed. And that 30%, which is floating, we intend to keep through the bank market on the short-end of the curve. So we have minimal long-term exposure on that portion of our debt portfolio.

So our long term funding strategy is fixed. So if we issue any bonds that have a duration of greater than 2 years, it's on a fixed basis. This year, we did a 7-year bond. We did another ten-year security, all fixed. And it's our short-term funding, which is primarily for progress payments and other operating expenses, that's floating. So that is not impacted by lease rate volatility. In addition to what John mentioned on the interest rate adjusted to the lease rate at delivery, we also escalate the lease rates by the published indexes of Airbus and Boeing, which is the escalation index, inflation index. So a delivery of the identical aircraft in, say, 2018 versus 2016, it's probably around 5% higher just because of escalation, in addition to the interest rate adjustment that John outlined.

Your final question comes from the line of Scott Valentin with FBR. Scott Valentin - FBR Capital Markets & Co., Research Division: While on the topic of interest rates, just, Greg, wondering if there's any room to further reduce the cost of funds? I know you mentioned that the line of credit had a reduced cost of funds. I'm just wondering if there's other opportunities as older debt comes due and you've got an investment grade rating now, is there opportunity to lower cost of funds?

Absolutely. We've only done 2 investment grade bonds to date, and right now we have a $6 billion debt book. So we're very focused on maintaining our investment grade credit profile and we look to continue to build out our investment grade bond portfolio.

We've also repriced a number of our bank term loans in the last 18 months after we received our investment grade ratings. And we've lowered these spreads over LIBOR on a significant number of bank financings that we did on individual aircraft that were booked in 2011, 2012 time frame. So we are working very hard to bring down the cost of debt as much as possible. And that is one of the reasons that our spreads between our revenues and our costs have maintained a very high level of profitability. Scott Valentin - FBR Capital Markets & Co., Research Division: Okay. And then just as a follow-up, you mentioned, I think, 12 aircraft now under third-party management. And that seems like an excellent opportunity given the operating leverage there, no real incremental cost, I guess, for you guys to manage those aircraft. But just wondering, how big you think that can grow? Is that really a focus of growth and can we expect meaningful growth in that operation?

Well, I think, yes. And look, I've said that it's our intention to grow that business. It's hard to give you estimates as to how big it become, but it's nice. As you indicate, it's very -- it's gravy to us. I mean, it's nice margin enhancing business. We've got the customer relationships. And for us, it's a balance between those right opportunities, that pay enough in management fees, yet keeping primary focus on our own business, on our own placements going forward. So really hard to give you any kind of quantitative estimates. We've got 12 airplanes so far. I can only tell you that I'm quite sure that we'll have more than that by the end of this year. Haven't really given a lot of quantitative thought, but for the fact that this will always just be a nice margin-enhancing part of our business, and so we want to grow it as much as we can.

And it also diversifies the number of institutions that we do manage aircraft for, and it gives us opportunities to develop more relationships both with the airlines for whom we're managing these aircraft where they are the lessee and also for the owners of the airplane. So we do plan on growing that business and its additive to our cash flows and our profitability and could be an important element in how we sort of diversify our sources of revenue in the future. Scott Valentin - FBR Capital Markets & Co., Research Division: Okay. And then just one final question. A kind of state of the industry, in terms of capital flows, there is, I guess, press reports that a fleet of 100 new aircraft are for sale and there's reports that a Chinese billionaire is going to bid on that portfolio. There's another lessor that's going public. Any concern about the amount of capital flowing into the space at this point in time?

There's only been one company that's gone public since the financial crisis, and that's the company you're talking to today. There's been a lot of other attempts to go public. We've not seen any other successful IPOs. There's a number of them that are in various stages, embryonic stages. And with respect to these 100 airplane sales, you're referring to AWAS, which explored going public, but came to the determination, with their shareholders Terra Firma that an IPO at this time was not feasible in terms of achieving the returns that they were looking for. So they're, basically, looking at breaking up the company to 2 pieces. Selling off the young portfolio to an Asian investor of about 100 airplanes and then managing sort of a runoff on the older airplane portfolio. So this sale is a contemplation of an alternate strategy since the IPO strategy wasn't successful.

Scott, I think there's no indication on any sector that there's going to be any capital shortfall. I mean, I think we've built a great business. We're being pursued by a lot of institutions, investment banks, banks, all the time. I just don't see any sign whatsoever. And by the way, for a good reason. The aircraft leasing business, overall, as a whole space, has proven to be a pretty good resilient business over many different cycles. So I think it's a good space. I think that's why people want to get into it, but I don't think that, that means that there's going to be any capital shortfall to us.

There is consolidation. We've seen it with the acquisition of Royal Bank of Scotland's aircraft business, and they were one of the largest aircraft lessors by SMBC. We saw Jackson Square being sold to another Japanese financial group. We have the AerCap acquisition from AIG of ILFC. So we have fewer players, but hopefully stronger players in the space.

There are no further questions.

Thank you very much. That concludes are call for today. And thank you for your participation.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.