Good day, ladies and gentlemen, and welcome to the Air Lease Corporation Fiscal Year and Fourth Quarter 2014 Earnings Conference Call. My name is Chris, and I will be your conference moderator for today. [Operator Instructions] And at this time, I would now like to turn the conference over to your host for today, Ryan McKenna, Head of Strategic Planning and Investor Relations. Ryan, you may proceed.

Good afternoon, everyone, and welcome to Air Lease Corporation's year-end and fourth 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 year-end and fourth 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, February 26, 2015, 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 projection as to the company's future performance represent management's estimates of future results and speak only as of today, February 26, 2015. 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.

Thanks, Ryan. Good afternoon to all of you, and thank you for joining us today. I'm pleased to report that for the year ended 2014, Air Lease increased its diluted EPS to $2.38 from $1.80 reported in 2013, representing a 32.2% increase over the prior year. In the fourth quarter of 2014, we increased our diluted EPS to $0.65 per share compared with $0.55 in the fourth quarter of 2013, an increase of 18.2%. For the full year of 2014, Air Lease Corporation reached another milestone in our growth path by topping $1 billion in revenue for the first time. In fact, we increased our total revenues to $1,050,000,000 from $859 million in 2013, representing a 22.3% increase year-over-year. Similarly, our top line revenues for the fourth quarter of 2014 were $286 million versus $243 million in 2013, representing an increase of just under 18%. For the full year, we also generated record pretax profit margin of 38%. I repeat, 38% pretax profit margin in 2014, which tops our 34% in 2013. This was achieved through our core leasing operations, our focused efforts on maintaining a low cost of funds as well as opportunistic sales and trading activities. Reflecting our strengthening credit profile, we concluded the full year with a highly attractive overall composite cost of funds of 3.6%, which is flat with the prior year. Globally, passenger traffic continues to grow ahead of our expectations, and we continue to see a steady and strong demand for our new technology aircraft. Passengers keep flying in record numbers, and airlines are remaining relatively disciplined on capacity control. IATA, the International Air Transport Association, reported that passenger traffic for the full year of 2014 increased 5.9% versus 2013, and systemwide load factors were 79.7%. These beat their original projections that came out…

Thanks, Steve. During the fourth quarter, we delivered 9 new aircraft from our order book and sold 8 aircraft from our fleet, ending the quarter with 213 aircraft in our owned portfolio. As we look forward to deliveries in 2015, we expect 10 deliveries in Q1 and even larger number of deliveries in Q2, followed by a light delivery schedule in the back half of the year. The market has remained consistently strong for the modern technology aircraft in our order book. Our overall portfolio lease rate factor remains strong and consistent. We are 100% placed in 2015, 78% placed in 2016 and 55% placed in 2017. I'd like to point out that 5 of the 7 aircraft that are remained unplaced in 2016 are, in fact, ATR 72-600s, which we just added to our order book at the Farnborough Airshow and typically replaced these aircraft about 12 months ahead of delivery for this type and category of aircraft. In summary, we're right on track with how we target aircraft placements from our order book, and our overall fleet yield remains in great shape. Sales during the fourth quarter were the largest to date for ALC; in fact, stronger than we envisioned certainly at the beginning of 2014 and continued throughout the year as it unfolded. We took advantage of opportunities in buyer demand in the market and concluded profitable sales transactions with a broad base of buyers. For the year, we sold over $600 million in aircraft, which was meaningfully larger than our original plan, reflecting the strength in the used marketplace. We're happy with the profitability of those asset sales while knowing that the higher level of sales will slightly impact our ongoing lease revenue base for 2015. So as we look forward to Q1, we'll have minimal…

Thanks, John. As you've heard, we've achieved an industry-leading pretax profit margin of 38%, which generated diluted earnings per share of $2.38, representing an increase of 32% from 2013. In the fourth quarter, we increased our diluted earnings per share by 18% to $0.65 from the fourth quarter of 2013. Due to favorable market conditions, we sold more aircraft in the fourth quarter than we did during the first 9 months of the year. Given the volume of sales that we recorded in 2014, I want to remind everyone that our rental revenues are a function of the size of our fleet. As you forecast 2015 in your financial models, you'll need to start with the ending net book value of assets and apply lease rate factor. We also anticipate that the first quarter of 2015 will be a moderate quarter in terms of CapEx. We're scheduled to deliver 10 aircraft, and the majority of these aircraft deliveries are scheduled to take place towards the end of the first quarter. I would also like to refer you to our footnote in our 10-K, which discloses the future minimum noncancelable rentals, which are tied to our existing fleet. While on the topic of contracted rentals, I would like to highlight that we have currently $7.5 billion in contracted rentals on our aircraft portfolio, which exceeds our outstanding debt balance. In addition, we have $8.9 billion in contracted rentals on our aircraft yet to deliver, which amounts to a total of $16.4 billion in minimum rentals under contract. This highlights the strong demand that we are experiencing for aircraft in our order book and underscores the strong cash generating potential of our fleet and order book. On the financing side of the business, we reacted to very attractive market conditions that existed…

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 over to the operator. Operator?

[Operator Instructions] And our first question comes from the line of Jason Arnold with RBC Capital Markets.

I was just curious if you could talk about the mix of aircraft sold during the quarter. And then maybe discuss a little bit more in detail which aircraft you're seeing the most interest in for sale and which should be more inclined to sell as well.

It's really a very wide cross-section of airplanes, ranging from the smallest being an A319 that we hadn't leased to a European airline, all the way to one of our oldest 777s that we had on lease to a major Asian airline and kind of everything in between. We had sales of Airbus aircraft. We had sales of Embraer 175. We had a couple of Boeing 737s that we sold. We had 2 A320s that we sold that tended to be the older A320s in our fleet. We sold an A330, also leased on Asian airline. And we sold one of our 2 remaining Boeing 767-300ERs. So it's kind of a kaleidoscope of aircraft, but generally, on the older segment of our fleet.

Jason, one of the nice things we like about these sales and why we continue them is the diversity that Steve is speaking about. And it was a really good cross-section and a mirror of our whole fleet. And again, though, as you know, we target selling aircraft once they reach about 78 years of age, which is about 1/3 of their economic life. We said that from day 1. And so now, as we hit 5 years of age, some of the airplanes that we bought in the first few years are getting to that mark. So the execution of our sales plan, we're actually quite happy with in its breadth and depth and mix and targeting exactly where we wanted to sell with a robust group of buyers.

I just want to comment, Jason, that not only did we have gain on these aircraft disposals, but a number of these aircraft that we sold we'll continue to manage on behalf of the owners of those aircraft. So there'll be a future stream of management fee income over and above the gains on sales that we recorded in the fourth quarter.

Great. Win-win there. And then just one quick follow-up. I know you guys are big fans of the 777-300ERs. Just curious about your thoughts around production bridge to the 777X as those aircraft start to come onto production here in a few years.

Well, I can tell you that Boeing has been working very hard to fill that gap. That kind of began in 2016 until the first deliveries of the 777-9X, which are projected to be right around 2020. Recently, Boeing announced a contract with Kuwait Airways for 10 aircraft to replace some of their older A340s and A300s. I know for a fact that Boeing is working very closely with a large U.S. carrier for up to 10 777-300ERs. Just a few days ago, Boeing announced an order for a group of 777-200 freighters from a large Asian airline. So Boeing is putting back a little more emphasis on the freighters in as much as it appears that the cargo flows out of Asia to both Europe and North America picked up a little bit. So I think we see some opportunistic placements for Boeing on selling some 777 freighters. And I know that there's a number of other campaigns that Boeing is actively pursuing on 777-300ERs, many of which are to replace Boeing 747s that are getting up there in age, 24, 25, 26 years of age.

The next question comes from the line of Mike Linenberg with Deutsche Bank.

Just 2 questions here. Hey, Steve. On Blackbird, where -- and I realized it's early, so maybe the impact is actually de minimis. Where does that show up on the P&L, the managed revenue? Or maybe that hasn't even shown up in the fourth quarter. Now going forward, you're staking that. Is that going to be accounted under the equity method or as an investment?

Well, the -- I'll address the revenue side. There is a line item called aircraft sales or gains from aircraft sales, trading and other. So that would include interest income, dividend income, consulting fees, commissions that we earn on used aircraft sales and gains on sales and management fees. And then Greg can talk about the accounting part of it.

Yes, Mike, in our footnotes, we disclosed that we account for the Blackbird ventures under the equity method of accounting. And those equity in earnings would also be picked up in that same line item.

Okay, that's super helpful. And I guess, this fourth quarter, I guess it's de minimis, right? Is that sort of the...

That's right, Mike, because we didn't do -- we didn't conclude most of the sales until tail end of the quarter.

Perfect. Okay. And then I think you were going to see you announced it in November, right?

Well, we announced it in November, and then obviously, the transactional activity and closings occurred after we announced the transaction. So we only had a partial quarter, and then we'll have additional aircraft joining that portfolio as it rolls on.

The granularity around the single aircraft type, you mentioned in the quarter that one of your sales was an A330 to an Asian customer. I'm just curious, since we've had the bankruptcy over at Skymark and there've been some A330s that have grounded, how did that impact that negotiation? Or did it not at all? I mean, what are you really seeing out there in the A330 market? Aeroflot obviously flies a lot of A330s as well. I mean, there's some concern that there's softness there. Are you even seeing that? Or are those aircraft just being -- for the most part, being absorbed into the...

Mike, the aircraft that I referred to is on lease on an Asian carrier, but it was not sold to an Asian carrier. An aircraft that we sold...

It was on lease.

On lease to another party. In other words, got a long-term lease. We do not have any A330 aircraft in Japan or at Skymark. Look, there's over 1,000 A330s flying. There are more A330s in operation than any other twin widebody aircraft. It's an extremely diversified base of airlines that utilize the aircraft. I believe the number is close to 100 airlines. And we have not really seen any dynamics. We took delivery of our last A330 in 2014. We don't have any more A330ceos on order. Our first neos come in spring of 2018. We do not have any expirations of A330-200s or 300s for a number of years, so we're really not sort of subjective to short-term volatility in A330 market. But I can tell you that we have not seen any big volatility.

Mike, I would add that, however, if we saw any great opportunities on those A330s, we would certainly act upon them for the reason that Steve just indicated. They are really widely held, great twin Airbus and are still in high demand. So I think we're in good shape on A330s, but we would certainly not be averse to picking up a couple if opportunities present themselves in the marketplace at really, really good prices.

The next question comes from the line of Nathan Hong with Morgan Stanley.

The team at Air Lease has talked about industry-leading margins a couple of times on the call. And obviously, over the past 2 years, you were able to demonstrate the ability to improve margins, looks like north of 300 basis points annually. But as I look ahead now as Air Lease continues to grow, I'm just wondering what the key initiatives are out there or moving pieces that are in place that would actually help Air Lease maintain or even further expand margins from here.

Well, I think the fundamental core, Nathan, is the inherent profitability of our leases, which are really generated by 2 things. One is the purchase price of the assets themselves, which we believe are some of the lowest in the industry, certainly, our industry. We have high-volume purchase contracts to drive those prices. And the second is our composite cost of funds also, which is the lowest of the publicly held less source. So I think it comes, first of all and foremost, from the core of our leasing, our asset pricing, our composite cost of funds. Then secondly, as you've seen this year, is derived by having purchased well-priced assets. If and when we sell those assets, we realize healthy gains. I see that continuing in the future, just as I do our core leasing profitability. But as we go, and especially as we going to '16 and beyond, you heard us last quarter, and we mentioned it this quarter, we are devoting significant resources developing our management business, especially through our joint venture, Blackbird Capital I. These will generate very good management fees for us. And in addition, we retain a 9.5% equity interest in that venture. So the building of our management fees in a significant way over the next 2 to 3 years, in my view, only serves to position ourselves not only to maintain our profitability but perhaps even to increase it.

Great. And just on Blackbird, how many of the 8 aircraft sold this quarter went to Blackbird?

5.

Next question comes from the line of Vincent Caintic with Macquarie.

On the Blackbird JV, kind of want to get a sense of how much incremental leases you can generate with the JV. And maybe we can take this by kind of the interest on the funding side, so for investors to fund the JV. And then also, on the leasing side, you had mentioned in the past that you had to turn away some leases to maintain your investment-grade credit rating. And I kind of want to get a sense of what that size could be to generate or to gauge what the impact could be for the JV.

Well, it's -- the Blackbird Capital I is ultimately designed to achieve about $2 billion worth of aircraft assets over the next several years. So you can just -- but there's no preset mix of single isle, twin isle, et cetera, so that -- it's harder to sort of give you a number of leases. I'd rather point you to the total capital of that venture. Depending upon the deals that we get, depending upon single isle, twin isle mix, I mean, you're talking about adding a meaningful number of aircraft there. But again, depending upon vintage, size, it's a huge ride of aircraft, you could add a $20 million aircraft, you could add a $120 million aircraft. So if you're looking for a quantification of how many aircraft or leases, I don't know the answer. All I can say is that amount of capital gives us a tremendous ability not to have to turn away business with current customers for concentration, et cetera, but to fund it over to Blackbird Capital. I don't really know how else I can answer it because I can't tell you what specific aircraft we're adding through the course of the venture.

Right. And I guess, actually, the sense is more of the understanding that Blackbird I is potentially a template for other Blackbirds. And so, actually, just wanted to get a size of -- sense of maybe the potential for what the amount of funding it could be in terms of capital that could be going into...

In response to that, I can say that both the bank lending community and many of the institutional investors who are already committed to Blackbird as well as new investors that have not yet come in have expressed strong desire to either expand this particular JV or bolt on additional Blackbirds once we fill up the bucket, so to speak, with the $2 billion. So we see this as a platform that can be grown, both in terms of equity investors and debt sources. So it's a very useful mechanism for Air Lease to be able to expand our scope of operations, periodically sell some of our used aircraft into this package as well as source external airplanes to strengthen our market position with the airlines themselves.

The next question comes from the line of Helane Becker with Cowen and Company.

So I thought I saw last week in one of the trade magazines that we all read that you guys had agreed with one of your customers to not -- I guess to allow them not to take delivery of a couple of aircraft. A, is that true? And b, if it is true, did you agree with them to do that because the demand for that aircraft was so great you could easily release it?

I'm not aware of any aircraft that we have customers that don't want to take. I think you might be mixing us up with another leasing company.

Maybe if they didn't get their contracts, but we're not aware of what you're talking about.

We've not had any airlines that have asked to reschedule deliveries or not take airplanes that we already contracted for. So can you be more specific as to what airline or where you found this?

Well, yes. Well, what I'll do is I'll find where I saw it, and I'll email it to you. I'm pretty sure I saw it in one of the publications that the Center for Aviation puts out. I just need to go back and look at today, but that's fine.

We have 40 airplanes this year, brand new airplanes that are already contracted, and every one of them is placed on long-term leases. And we're not aware of any customer that's designed to do anything else but take the aircraft.

Okay. So that's great. And then the other thing I wanted to know that's completely unrelated to this is on Blackbird, did -- I know you said that you have $2 billion in assets. Did you say what your leverage would be on that?

Well, committed equity of $500 million. And then you all said the airline is putting up deposits and rents upfront and so forth, so you can calculate that. We have a bank facility, a warehouse facility that is able to accommodate a good portion of the acquisitions this year. And then a number of lenders have expressed strong interest to expand that and offer us other financing options for additional aircraft.

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

John, you mentioned that the currency, the strong dollar could potentially create some opportunities to buy some aircraft this year, given that you sold a decent amount in the fourth quarter and you have a lot of new money coming on the new debt deal. What's the appetite for buying new aircraft today? And are you having any conversations currently about adding to the portfolio?

Well, yes. I mean, we are always on the prowl, and our marketing team is doing a good job of faring out possibilities. But suffice to say, as you can probably guess, we're pretty tough buyers. I mean, we're pretty price-sensitive. But actually, the current situation, we believe, will yield some opportunities for us. So we're in the early phases and in particular, but looking outside the U.S.A., as currency has weakened against the dollar, we buy in dollars. So yes, we think that's a great opportunity for us. Can't really identify anything specific as yet, but that's why I made it on those remarks.

We have had a couple of airlines that funded their loans of new planes that they acquired a few years ago in euros, and so if they sold aircraft now in dollars, they can actually pay off those debts with fewer dollars. So we are looking at some opportunities to work with airlines that are mutually advantageous.

Sounds good. And the lastly, just the -- do you have a mix of the 10 aircraft that you're delivering in the first quarter, what types of aircraft those are?

Yes, we can go through it. 1 ATR...

That's delivered already.

That's delivered, yes. 4 800s; 2 -- actually, 6 800s; 1 -- 2 777s; and 7 A320s -- 21s.

Excuse me, let me look into this. 4 800s; 3 A321s; an ATR; and 2 777s.

There you go.

There we go.

As a CFO, he's thinking ahead. Second quarter is going to be our busiest, as it always is. In both April and May, we have -- in April and May, we have 7 aircraft each month, so just 14 new airplanes in the month of April and May.

And the last question comes from the line of Jamie Baker with JP Morgan. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Mark Streeter is also here with me. Most of our questions have been answered. But Steve, I did want to circle back on your comments as it relates to the 321 LR. Are you ordering this aircraft because it is a true 75 replacement -- I guess, that would make it the 757 replacement? Or is this just a bit more of a niche aircraft, sort of a complement to the existing 320 family?

We have a number of A320, A321neo lease customers that have certain sectors in their route system where they could utilize additional range, and some of those are currently flown with 757s. We also have other airlines that are operating 6- to 7-hour sectors currently with nonoptimal airplanes to match the traffic flows on those routes. I would not characterize the A321 LR as a true 100% 757 replacement, but it does accommodate a significant portion of the 757 flying done by U.S. and foreign carriers. For example, in Europe, we have a number of carriers that operate these aircraft from Northern Europe, U.K., Scandinavia, Northern Germany, down into places like the Canary Islands, down to Mediterranean resorts, Egypt, where the A321 with additional range gives these airlines a lot more payload range flexibility. Many of those are now flown with 757s that are getting pretty old. There's also a high number of city payers between North America, particularly the southern tier of North America such as Houston, Dallas, Miami, Orlando, where you see a lot of 757 flying down to South America where the current A320, A321 on some of those sectors are a little bit marginal in terms of being able to carry full payloads. So we see the A321neo and the A321neo LR as airplanes that can expand the horizons for a lot of these carriers and being able to serve more city payers in that 180- to 200-seat category. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Are you willing to hazard a guess as to whether this aircraft forces Boeings hand? I assume you've been talking to them about this issue.

Yes, we spend a lot of time with Boeing. We're very, very intimately involved with Boeing on the design, thinking that's going into an ultimate replacement of the 757. And based on everything we've seen, I think the re-engining idea is not on the table at this time. And I think Boeing is looking at an airplane that is not only a 757 replacement but also could do things beyond that capability in terms of range, size, because we're looking at an aircraft that will be around for 35, 40 years. I think the focus is on an airplane that can replace the 757 as well as do other things even above that size.

So... Jamie N. Baker - JP Morgan Chase & Co, Research Division: Excellent. Steve, I...

Go ahead. Jamie N. Baker - JP Morgan Chase & Co, Research Division: No, was John about to say something? I was just going to thank you for your insight on that topic, but if there's something else to add, please, don't let me cut you off.

No, there's nothing further to add.

Yes, I hope that answers your questions on the A321 LR. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Yes, yes, no, it does. And the Air Lease specific questions, particularly the issue of the sale leaseback potential there, that was already addressed.

Our next question comes from the line of Vincent Caintic with Macquarie.

Just one more for me. You gave some great detail on the placement rates from 2015 through 2017. I was wondering if you could share what sort of yields and durations you're getting on those placements for 2015 and 2017. Also, if you could describe how your campaigns for 2018 onward have been doing.

We don't provide any forward guidance on future lease rate factors or how things are numerically shaping up. Suffice to say that you can look at a trend that has been increasing the average duration of our leases, so now we're enjoying again the longest average portfolio duration of all of our publicly traded peers north of 7 years. I expect that, that will continue to grow a bit. I've also mentioned that consistently, over the past several years and since inception, we've had a very stable overall lease portfolio -- lease rate factor. We -- and by the sum of some of the remarks, we don't see that changing. As to the '18 placements, that's a good question. They're actually going really well. We've been very, very busy since the beginning of the year, really gearing up on that side. '17 and '18 are big transition years for the industry and for us because that really -- these are the years where you'll probably see the final production of the 737-800. You'll probably see the final production of the A320ceo, the current engine option. We transitioned to the 737-8MAX, the A320 and 21neo. And suffice it to say that we're in a position now where all of that, the dash 8MAX, the neo, et cetera, there is very strong demand for those. There's not that many neo or MAX positions left in the world in '17 and '18. I mean, most of them have already been sold or leased out or otherwise placed. So we're in a great position there because we have a number of campaigns that want to have remaining few. And I would highly emphasize there's just not that many left in the whole world today, and so I think we're going to be able to take advantage of that in terms of our overall lease rate factor and our lease durations.

We have no further questions. I will now turn the call back over to the speakers for any closing remarks.

That concludes our call for today. Thank you, all, for joining us, and we look forward to speaking with you at the end of Q1.

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