Good day, ladies and gentlemen and welcome to the Q4 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to introduce your host for today’s conference, Mr. Ryan McKenna, Vice President and Head of Strategic Planning. Sir, you may begin.

Good afternoon, everyone and welcome to Air Lease Corporation’s fourth quarter and year end 2015 earnings call. This is Ryan McKenna Vice President, 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 fourth quarter and year end 2015 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, Friday, February 26, 2016 and the webcast will be available for replay on our website. At this time all participants to this call are in listen-only mode. At the conclusion of today’s conference call, instructions will be given for the question-and-answer session. 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, February 26, 2016. 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 pre tax income, adjusted diluted earnings per share, are non-GAAP measures. A description of our reasons for utilizing these non-GAAP measures as well as our definition of them and the reconciliation to corresponding GAAP measures can be found in the earnings release and 10-K we issued today. This release can be found in both the Investors and 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.

Thanks Ryan. Good afternoon and thank you for joining us today. I am pleased to report that for the year ended of 2015, Air Lease recorded total revenues of $1.2 billion versus $1.1 billion in 2014, an increase of 16.4%. For the same year, we recorded adjusted net income of $508 million versus $439 million in 2014, which represents a 15.8% growth year-over-year. This has resulted in an adjusted diluted EPS of $4.64 for the year 2015 versus $4.03, an increase of 15.1% year-over-year. During the fourth quarter ALC recorded revenues of $327 million which is the highest in our history versus $286 million in 2014’s fourth quarter, representing a 14.3% growth. Adjusted net income grew by 11.6% in the fourth quarter versus the prior year to $133 million and adjusted net income of $ 1.21 per share during the fourth quarter also represents an 11% growth versus the fourth quarter of 2014. These financial returns represent the fifth consecutive year of leading and growing results that reflect the strength of our aircraft leasing platform. Let me begin by stating that the current business environment in the aviation industry remains quite strong. Airlines are performing well broadly generating record profits. Lease rates are solid, liquidity is good and aircraft values are robust in the secondary marketplace. Financial markets remain volatile and we perceive the fears that are currently shaping headlines as overblown. Let me repeat what I said last quarter. We have heard many questions about slowing GDP growth in emerging markets, a slowdown in China, concerns about currency, production rate increases, and residual values of current aircraft. Yet once again our financial results and overall fleet metrics reflect the consistency in our team’s execution as well as our continued out performance relative to our peers. I want to be…

Thanks, Steve. On an overall basis our core leasing operations remained strong and our customers are performing well. As Steve just indicated, on a global overall basis demand remain strong Asia and China have not slowed. But we do see some known areas of regional weakness in South America and Russia. However, we do believe in this regard that those two regions will present opportunities for us as Airbus and Boeing we anticipate, will be giving up some new additional slots that we would be able to seize upon and place in other regions of the world. During 2015, our team has signed leases on 120 aircraft with 46 customers across 35 countries. There is no stronger signal for demand for high quality new and used aircraft than those results indicate. The lease rates on our current fleet are consistent and unchanged and the forward placements are continuing at these expected levels. This past quarter, we took delivery of six aircraft from our order book, acquired three incremental units and sold four aircraft. We continue to execute our business with the consistency that our airline partners and investors have come to expect. Take a look at the placement table in our 10-K which indicates that we are 94% placed in 2016, 97% placed in 2017 and 62% placed in 2018. However, I want to indicate something very important. There are two un-placed ATR aircraft that are included in the 2016 figure which are being transferred to Nordic Aviation Capital, as part of the sale announced in December. So we’re not going to be responsible for those and we’re so therefore we’re actually fully placed for 2016. In summary, we’re right on track with how we target aircraft placements from our order book 18 months to 36 months ahead of delivery.…

Thank you, John. We ended 2016 with another quarter of record revenues and profits. Throughout the year we have continued to expand our adjusted returns on equity. The annualized fourth quarter adjusted ROE was 18%. We expect to benefit from operating leverage as our fleet grows the refinancing of $1.1 billion in an unrated high yield bonds with investment grade bonds and the growth of our management fees. For these reasons we’re well-positioned to expand our adjusted returns on equity in the future. Additionally, our order book provides us with a pipeline of attractively priced aircraft, which will serve as the backbone for our continued growth. As we continue to grow and place aircraft from our order book, we remained main focused on risk and customer diversification. Broadly speaking, we limit ourselves to 10% concentrations with individual airlines. When looking at our China exposure, which is 22% of our revenues, it’s worth noting that 80% of this exposure is with the three Chinese majors, Air China, China Southern, and China Eastern. These airlines are some of the strongest credits in our portfolio and have consistently performed through cycles. On the financing side of the business, we have continued to strengthen our balance sheet. We started the year with a liquidity balance of $2.6 billion. This represents an increase of 23% from the prior year. Keep in mind, that this does not include the $1.2 billion in minimum lease rental payments under contracts for 2016 or the sales proceeds from this sale of our ATR fleet to NAC. Additionally, as we mentioned in November, we pulled forward the refinancing of an unrated $500 million bond, which matured in January 2016, saving the company nearly $10 million in interest expense annually. As we sit here today, our next public bond maturity does…

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?

Thank you. [Operator Instructions] And our first question is from the line of Michael Linenberg with Deutsche Bank. Your line is now open.

Yes hi Good morning everybody. I guess two questions here, the first just on the financials. A quick question here on just when I look at the deposits on flight equipment, you know, the PDPs here, when I look at December 31 versus December of 2015 versus 2014, it looks like they are down about $70 million and yet when I think about your order book today versus a year ago, I think it's about 30 units higher. Is that a function of just maybe having orders for more narrow bodies, or is there something else that's driving that number down?

Yes, what happened, Mike, it’s a good question, as we had quite a few Boeing 777-300ER deliveries. And the Boeing 777-300ER is the highest single capital cost per unit in our fleet. And in so far as we had a number of deliveries last year, we had a very strong pipeline of deliveries that took place in 2015. As we open 2016 the amount of aggregate deposits on the wide-body side particularly 777s has gone down because now we’ve taken delivery of a large number of those 777s last year.

Okay, perfect. That makes sense. And then just my second question, and this is probably for you, Steve, as well, sort of big picture conceptually, but we had a regional airline the filed for bankruptcy last night who happens to have a very large fleet, probably one of the largest fleets of the Embraer 170, 175 aircraft. They also have an order for C-Series. I mean, look, I know you don't play in that space that much. I think you still have a few E190s out there. But the fact is, when you've seen this in the past, like, you know, what are the implications? Do we see – when a big operator of that fleet type, will we see them come under pressure or is the market sufficiently large that it's more of a footnote and things sort themselves out pretty quickly? Just your thoughts on that?

Yes, well, a couple of comments, first of all the Embraer 175 is the most popular backbone in today’s U.S. regional airline industry. And being on the Board of SkyWest we are strong supporter of the aircraft aligned them for Alaska, America and Delta United. But I want to make an important observation. All of the EJETs, and of the Embraer jets that ALC has are outside the U.S. We don’t have any with the U.S. regional carriers. We have those aircraft this first all over the world, but no, U.S. concentration. And so we have seen no decline in activity on our EJETs, all of them are leased out. In fact we extended a whole number of leases last year. We also sold four of our EJETs last year at significant profits over our net book value. So the republic situation is really a factor driven by pilot shortages and their inability to meet their contractual commitments with their large U.S. domestic airline partners. But they will continue to operate their Embraer170s and Embraer175s. So has nothing to do with the equipment. It was more of a structural problem that they had with their main line partners.

Great. Thanks, Steve.

And our next question is from the line of Jason Arnold with RBC Capital Markets. Your line is now open.

Hi good morning guys. Just first a big picture question for you. Steve, you've been in this business from the start and, John, you've been at it for the past 30 years. And as you mentioned in your comments, you've both been through a number of macro cycles and periods of uncertainty. I think about over that time period, the Cold War, Iraq war, debt, market volatility in the late 1990s, et cetera. So I was just curious if you could give us some historical context on the durability of your business through some of those past periods. I feel like the market is largely missing the stability and durability of your models. So just some color and comments there would be great

Thanks Jason, yes we have been through a lot of those periods everything that you’ve mentioned. But the industry today still has yet to face, what it has already faced which was the worst crisis resulting from 9/11. In that period back in the day at ILFC, we had at that point in time, within a year thereafter. We had almost 10% of the ILFC fleet, subject to bankruptcy across the globe. Yet the worst that ILFC ever did at that time, was in the following year too, the earnings were only relatively flat and progressed nicely thereafter and we at that time used it as an opportunity to double down and buy airplanes at very, very good prices for the manufacturers who were very worried. Today the very far different environment, I bring that crisis up because it still remains today the worst crisis that the industry has ever faced. Today we’re in a much more capacity driven in terms of discipline, capacity discipline driven environment. Both from the airlines in terms of their own seat capacity, they’re putting in the marketplace, but also from the manufacturers in terms of how they call and how they look at their forward order book. So as a result of that, while you can, I don’t think ever remove the cyclicality in this industry we absolutely, firmly see and believe that the amplitude, potential amplitude of those cycles has simply decreased. There’s actually less volatility and in our comments today the manufacturers being very disciplined in the production rates, you’ve seen Boeing adjust on the 777 downward, you saw Airbus actually go down on the A330, but then they’re going to bring it back up, because they’ve sold a lot more. So I think that that discipline overall, born fundamentally by the need to concentrate on fundamental returns to shareholders and financial discipline and reality, does put us in a new marketplace. We have never seen now, when IR [ph] announced the results of the past [indiscernible] 2015, they also pointed out it was the strongest results in over five years since the 2010 financial crisis and well above the 10-year industry average. And we see these numbers continuing to progress going forward. So I would say from my advantage point and Steve shares it and he may comment here, we’re probably in the best overall industry position today given our 30 years to 40 years of experience, than at any time in the past. Steve you want to add?

Yes, it’s sort of ironic that in the last five years if you look at the global economy, particularly the Western economies in Europe, North America and Japan, we’ve had the most anemic growth rate in GDP. Yet the airline industry that we serve has experienced the highest profits in the last three years since the founding of the airline industry back in right after World War I. So it’s very ironic that the very industry we serve is in the best financial health and is able to continue to modernize their fleets. Yet traffic growth has exceeded our historical measure of two times GDP growth. And what we continue to see is a growth in the middle-classes throughout the world, we see more business mobility and we see an increasing amount of global trade connected to the airline industry in a positive way. So, I mean, we can go back to every crisis that we've experienced starting in 1973, when I remember jet fuel prices were $0.12 a gallon. I remember when it breached $1 a gallon then it went as high as $3.50, $3.75 a gallon. And we’re now back well under $2 a gallon. Yet the airline industry and leasing community has been very resilient to all of these changes. So while we continue to pursue a conservative course we see some very, very strong fundamentals in our industry. And I think the results demonstrate that.

Absolutely. Thanks a bunch for that wonderful content and color, guys. And then just one follow-up I guess for Greg here. Just curious if you could update us on the Firm's funding needs for this year. I don't think you need much, if any, term debt issuance, but I'd love color, an update here, and maybe some color on credit spreads seen in the market and potential rating upgrade benefits there to be had as well. Thanks

Thanks, Jason. We’re sitting on a, as I mentioned in my prepared remarks, we’re sitting on a very strong liquidity balance of $2.6 billion. We've already pull forward the refinancing of our January 2016 public bond maturity that was $500 million that we did in August. I think we've been really focused on keeping that flexibility because we never want to be forced to go to the capital markets. So we have a significant amount of flexibility allowing us to pick and choose as to win. But our next major maturity is until 2017 and we have the strength to be able to avoid the capital markets until then. But we do have the flexibility to allow us to opportunistically evaluate the markets as we see them. I think we've been – I think one of the key things on the rating size that we've been really focused on growing our unencumbered assets base. We’re up to $10.6 billion in unencumbered assets only 7% of our debt being secured as a ratio to total assets. I think these are very strong points. So when people look at our credit to evaluate how – our overall ratings?

And as Greg mentioned earlier, we now have over $21 billion as we sit here today toward the end of February. Of contracted rentals on our jet fleet and that cash flow in the future is a very strong signal to our bondholders that we can adequately service all of our obligations with a high degree of certainty and with a large cushion of safety.

Yes, I’d also add just from an overall perspective, but there is one thing I think that still missing on the street is the strong cash flow generation that we have in our model and we’ve just given you a lot of numbers evidencing that, that at the end of the day, that’s really a key focus of how we look internally at managing our company. And I think that when you look at the strong platform, if you look at all of our future customers taking future airplanes, it’s a very, very strong credit quality, we have very strong credit profile, we’ve not had anybody come to us to differ, or cancel, or anything else like that by any means. So all these macro concerns as Steve mentioned in his prepared remarks, et cetera, but I do think what’s missing is just the strong cash flow. What’s missing from the Street perception rather is just a tremendously strong cash flow position our company is at.

I think the other thing that we should point out, is that this company unlike, a lot of other lessors has had and does have 100% asset utilization. We’ve had no write-downs of our fleet, we have total operational readiness of all our aircraft, they’re all generating revenue and that is really unique in this particular sector.

Excellent. Thanks very much guys and we'll see you at ISTAT next week.

Look forward to it.

And our next question is from the line of Jamie Baker with JP Morgan. Your line is now open.

Hey, good morning, gentlemen. This question of low fuel driving ships and fleet planning clearly isn't going away as quickly as any of us had hoped. You know, the point that I consider relevant is that, while anybody really can go out and buy an old plane, being able to profitably operate it with sufficient reliability is a skill maybe that is possessed by Delta and a handful of others. I don't know if maybe if Lufthansa falls into that category. Have you seen any evidence amongst your customers of airlines beginning to invest more in their MROs in order to enable them to potentially operate aircraft longer? It seems to me that that would be the leading indicator that something could possibly be changing

The answer is no. And I would comment that to the extent that the MROs are growing it’s more a function of their overall fleet size growing, not so much a shift towards older aircraft due to fuel prices. So MRO growth is largely driven by the overall fleet growth. It’s not so much driven, because they are changing strategy the vast majority of airlines are changing strategy towards older aircraft. So the short answer is, this is we have been looking very actively for signs of this and as we’ve mentioned in the past, I think two quarters calls. We see this as a very positive thing not only for the financial health of our airline customers, but it's really helping our releasing. We actually have a very few leases expiring in 2016, 2017 and 2018, but those that are we’ve actually accelerated the extension of those leases because as those airplanes are eight, nine, ten maybe eleven or twelve years of age, airlines have been extending. But they’ve not been extending for 10 years or 15 years. They’re extending for two years, or three years or one year. In some cases we’ve gotten airlines asking five years, six years, seven years. So it’s a balanced demand profile that has been enhanced. I would say for low fuel price, but not at the expense of new aircraft demand. John?

Well to give an example, if we look at like say Delta, United American, Delta is in a very aggressive new acquisition mode, they just took delivery of their first A321, they were a co-launch customer with us, on the A330 Neo, they ordered A350-900 they’re getting deliveries of a stream 100, 737-900 ERs, United just ordered some additional 737 NGs, but they’re also taking some used A319s from both China Southern and Spirit. American has not really engaged in used aircraft hunting, because they’re still sort of consolidating the U.S. Airways and the Americans fleet.

Sure.

But when I go to Europe and Asia, I don’t really see that strategy that Delta has followed I don't really see the leading airlines in Europe or Asia looking for used aircraft that are mid-life assets. Now there is a large marketplace for mid-life assets, but it’s not the biggest network carriers that are looking for mid-life assets. It’s usually the smaller and mid-size airlines, its start ups, its LCCs, its charter airlines, and it’s more the boutique end of the market, that has shown a robust need for midlife aircraft. For that demand is coming mainly from a different segment of the market than we serve.

And Jamie I think it's a great question. And thanks for allowing us to expand upon this. One thing I think it's also missed is new aircraft like all product new product technologies are better aircraft, in terms of their payload range they offer. In addition to strictly just fuel burn, they generally speaking fly longer, longer sectors they have greater useful loads, they have more operational utility to the airlines, they're younger there's obvious savings and maintenance. But let me point out one big area as well, which I don't think has been recognized by the Street. We’re in a world where environment, the environment plays a larger and larger role. If you see the annual reports of airlines if you see them they’re increasingly talking about environment sustainability and their contributions towards that platform. When you pick up the newspaper and see, when you pick up the newspaper and see a woman in Beijing on the street with a mask on her face and you can't see the opposite side of the street and they're closing schools because of that mark my words we are telling you based upon our years of experience that this over the next 10 years to 15 years to 20 years will become an ever big issue. And the best way to solve that issue for the airlines is to operate the most fuel efficient fleet, not only the most fuel efficient fleet in other words burning less fuel, but these new technology aircraft burn less per pound of fuel and produce less NOx emissions and less carbon footprint per pound of fuel burned. So if you're looking at macro issues, it's far more than just fuel burn today, it's great utility, greater payload range, lower maintenance costs, and more environmentally friendliness.

I appreciate you expanding on that question. Just a quick follow-up, John, while I have you. You said you were about halfway down the runway with Blackbird. Has the plan for that entity evolved at all given what's been going on in the market, or is it basically developing in line with what you envisioned when you announced it, which I guess was something like 15 or 16 months ago?

Yes, I know it's developing in line. We’re actively pursuing additional product which you'll see probably more towards the middle part to the – part of the end of the year typically the first half of the year is a slower period of time for aircraft acquisition and transactions. But I’m not saying that this is going to happen for Blackbird but the example that I gave earlier about some new aircraft additions being available from some of these couple of softer regions may or may not also help materialize for Blackbird. So we’re actively working on that front. But you probably will not see a lot of additional transaction detail from us on that front till the middle year or the second half of the year.

Okay, fair enough. Steve, John, Greg and Ryan, thank you very much

Thanks Jamie.

Thank you.

And our next question is from the line of Helane Becker with Cowen and Company. Your line is now open.

Hey guys. It's actually Steve Stern on for Helane. Just one I guess bigger kind of picture question here. We've been getting a lot of concern from our investors talking about aircraft kind of coming on the market. So any thoughts on the Middle Eastern carriers kind of exiting from some of their older aircraft over the next few years? How is this going to play out? Is this going to affect kind of the resell value of any of the aircraft out there?

Well a lot of the leases that I recall doing were 12 year leases, some of those have been extended to long as 18 years, so there’s a natural roll off, of leases that’s taking place not only among the Gulf carriers in the Middle East, but, it's a global phenomenon when the leases end either you have an extension or you have to re-market that aircraft to another airline. Historically, in our case, about 70% to 75% of our leases get extended. And what’s not extended is placed or sold to another airline or to another buyer. So the phenomenon you mentioned in the Middle East is really not any different than what we’ve seen in other parts of the world. In fact I would say, if we look back the past year, to Steve’s comment we’re actually and apologies I don’t have the quantity of that in front of me. My gut tells me we’re actually well north of 70% to 75% of lease extensions across those extensions that we’ve done. And to our point earlier yes fuel has very much helped that. So it’s really helped all the way around. And I believe that that’s going to lead us, if we look on a period basis year-to-year. I believe our extension rates in terms of another words is the airline going to stay with that current lessee are probably going to go to grow closer to 90%. But interestingly, we have delivered, for example, new aircraft to the large Middle East carriers like Emirates and Etihad both Boeing and Airbus aircraft. We have new deliveries coming up, for example on 787-9 to Middle East carriers. And these are effectively replacing either their owned older aircraft or leased aircraft from other leasing companies are coming off lease. So we continue to see this recycling going on and our emphasis is introducing new technology aircraft at the airlines for both growth and replacement of the older jets.

Okay. And then one other question just looking at I guess your net book value here. Where are you guys growing your exposure in Asia? And then what percent of your book value is not exposed to Russia currently?

Well, we have almost, we have very little obviously [ph] Greg doing some quick math on Russia…

[Indiscernible]

Yes he have five airplanes there right now.

Yes, we have five A320s that represent about 1.22% of the book value of our fleet. And as far as the growth in Asia I can tell you that we've had significant emphasis on Asian carriers not only in China, but outside of China. So whether it's Korea, or Taiwan, Thailand, Vietnam, Indonesia, we have very, very strong footprint in Asia external to Mainland China. Mainland China is still a very strong market. But ALC is very well diversified both in north Asia and southeast Asia.

Let me just reiterate some of the specifics I gave in my prepared remarks to your point. Specifically in Asia on our widebody side, we announced placements with Eva either in Taiwan four 787-9s two 777-10s; and with Malaysia Airlines four A350s; Vietnam eight 787-10s; and then in the Middle East the Oman 787-9. I emphasize the wide body because it's not an area I think of overblown concern here. But Asia, overall still remains by everybody's metric no matter who you are Boeing, Airbus, other leasing companies, they still represent the strongest growth area of the world.

And we have a number of unannounced wide body transactions that will be made public in the near future.

Perfect. Thanks guys.

And our next question is from the line of Arren Cyganovich with D.A. Davidson. Your line is now open.

Thanks I think you've done a good job of explaining how supply and demand is well-balanced today. And kind of echoing some of the prior questions, we are still getting questions about concern about supply two or three years out. I was just curious what your thoughts were about your views of where supply would be. And to the extent in your long history with the OEMs, will they cut without some sort of demand kind of shock to the system?

Look, based upon all these years of experience we’ll be the first to admit that the announced production rates for the single-aisle aircraft in particularly at same high. But at the same time we scrub the skyline charts of the manufacturers, in some cases with them. And with the discipline that the manufacturers are showing repeat, are showing in current production rates that is the methodology to adjust for any supply demand changes going forward. I think on an overall basis, both Airbus and Boeing are more focused on this than we've ever seen before. What should the number be? What should the production rates be? The answer is they should be sufficient to adequately meet the firm demand, the firm order that’s there. As you know both Airbus and Boeing overbook their commitments, and they are still over-quoted in many months of delivery, kind of like an airline overbook seats. There is no right number, the only correct concept is the adjustment of supply and demand as it is needed. And so far we see the manufacturers do that. Going forward, there’s question about whether Boeing is going to develop more of the middle of the market aircraft, we’re intimately involved with that discussion. There is a dynamic in the marketplace that on the single-aisle side Airbus has pretty strong platform on A320, A321 and the NEO platforms going in to future. Boeing a very, very strong on the 787-8 MAX but their larger variant 787-9 MAX has not really taken a strong footing in the marketplace yet. So you really have a situation where on the single-aisle side you have sort of two strong products from the air bus side in terms of what's already been booked in the order books. On the 737-8 MAX though it's primarily that product it's not to a large extent later. But the good news is no matter what happens in the world the manufacturers do have the ability to adjust those rates and we've actually seen that.

I think you've done a good job of explaining how supply and demand is well-balanced today. And kind of echoing some of the prior questions, we are still getting questions about concern about supply two or three years out. I was just curious what your thoughts were about your views of where supply would be. And to the extent in your long history with the OEMs, will they cut without some sort of demand kind of shock to the system?

I think we looked at the unsecured bank market right now we have about only about 30% financed by the bank market, I think there's more capacity there. I think export credit is a great backed stop for the industry. But with their upfront fees, it's not currently attractive to us. And I think the market broadly misses the real benefits of being an unsecured company. Right, we’re not buyers by attach financings when we need to go out and sell our planes or transfer them around. We don’t have to face swap breakage, swap cost other charges when we need terminate the financing. I mean there’s all these operational benefits, I think people will just miss and that’s why we focus so firmly on financing the business on unsecured basis.

I would say certainly its really important Aaron is that you give a great deal of flexibility as Greg was mentioning. And we don’t really see the rate pick up to give up that flexibility, because what we’re able to do in the unsecured markets both bank, and term and private placements and senior bond markets are so much superior to competitors while we give up that flexibility when we don’t need to and we don’t pick up any rate benefit for it.

Yes over the long-term the unsecured investment-grade capital market has been the most efficient way to finance new airplanes. And I think we're sticking to that strategy.

Also as we’ve seen some volatility in debt markets and spreads our actual aggregate cost of funding, debt funding has actually come down.

The actual interest expense?

Yes, the actual the rate interest, the average rate of...

Add cost to the company which is really important to focus on.

We’ve also had a number of foreign banks that have joined our various bank credit facilities. So we’re seeing strong demand from commercial banks, both within the U.S. and also externally.

Thank you.

You welcome.

And our next question is from the line of Kristine Liwag with Bank of America. Your line is now open.

Hi, good afternoon. Steve and John, the color you provided regarding the macro environment was helpful. Can you bridge that positive qualitative outlook to some quantitative metrics? And basically in the past year, you've placed another 14 aircraft that are scheduled for 2017 delivery. Can you discuss the lease rate factor of these contracts and how they compare to lease rate factors on aircraft that are scheduled for delivery in 2016?

Yes on an overall portfolio basis, Kristine as we’ve said they are stable. So if all of our forward placements are really right inline with – our current overall portfolio lease rate factor, there is variability. Some are higher, some are lower.

Also, some leases, we've done some 14-year leases, and we've done 10-year leases and 12-year leases so there’s small variations based on the term of the lease. But as John said the aggregate lease rate factors, in fact we just went through this with our Board of Directors this week is remained extremely level for the last four years.

And going forward to our placements, every single airplane that we actually have placed now for the next five years, part of the analysis that we do and Steve was just commenting that we share with our Board. On overall basis it’s stable. It’s really hasn’t changed much, in fact, there’s no significant mathematical change to the overall lease rate factor. Again, variabilities some longer lease terms some shorter lease term mostly longer, but an overall fleet basis in our portfolio which is what we manage to they are consistent.

Does that help you, Christy?

Yes, that's very helpful. And then for my second question, for the aircraft that you have already placed in your forward order book and with your experience in the industry, can you discuss a time when an airline has walked away from a binding lease? And I guess to ask my question a little bit differently, are there any airlines today on your watch list that have signed a forward binding lease?

Yes, in the history. I’ve been in this business now almost 50 years there’s only been one time that an airline walked away and was Philippine airlines walked away from 747-400. So that should be close to your heart. But that was back in 1998. And we had $3 million letter of credit from Chase Manhattan Bank which we collected, but we leased the aircraft immediately to Air New Zealand on a 12-year lease. But it’s only been one time that an airline actually walked away from a delivery.

Early 90s.

It was ‘98.

’98.

Thanks it’s very helpful

Sorry to be personal.

Thank you very much.

Thanks Kristine.

And our next question is from the line of Christopher Nolan with FBR & Company. Your line is now open.

Hi, any possibility that some of your A320 Neo deliveries, could be delayed because of the engine issue?

A couple of weeks here and there, thankfully we were not at the upfront end of the program as were Qatar and Lufthansa. Our first delivery was originally scheduled for end of May, and now it looks like it’s going to be in the early part of June. Subsequent deliveries appear to be in good shape, we do not see any delays in any CFM power deliveries. And we are advised and confirmed by Pratt Whitney that the modifications on this engine start up timing will be rectified by no later in July or August. So we’ll only get one airplane delivery that will be the pre modified version. So I think going forward we’re in good shape. In ‘17 we have a very robust delivery schedule of A320, and A321 Neos. Both Pratt and CFM powered. And I just got a confirmation this morning from Airbus that everything is on track.

As my follow-up…

So we have one delivery – yes go ahead

Yes, as my follow-up question on the 757 replacement that you mentioned earlier Aviation Week mentioned where Boeing might announce the program sometime this year, do you think this will be an aircraft attractive to lessors and if Air Lease were to make an order, how would it finance it?

Well, the different schools of thought on the design of this aircraft and we do not believe at this point Boeing has made a definitive decision on the configuration of the aircraft. And there’s a number of alternatives, single aisle aircraft, there’s an aircraft that would use the existing fuselage of a 737. There’s a small wide-body twin-aisle version. There's multiple scenarios that Boeing and the engine companies are evaluating both in terms of acquisition cost, in terms of development cost, in terms of timing, how competitive that aircraft would be against A321 Neo. So there’s many, many variables. And I don’t believe that Boeing either at the commercial airplane division level, in Seattle or in Chicago has made any final determinations on what is the best course of action. As to your second question, if the aircraft we feel offered significant economic an operational benefits to the airlines, we would definitely consider ordering that aircraft. However, let me caution you that the introduction date of any new technology airplane in that category is probably at least eight years or nine years away minimal. So in terms of visibility on lease rates and how we would finance it, looking at deliveries in 2023, 2024, 2025 it’s very difficult to forecast. You know the timing of that program, what those aircraft would cost, what the financing environment is at that time. But if we do place an order it will have no revenue impact on ALC for many, many years. So it’s really an insignificant element in our five-year financial planning.

Great, thank you for taking my questions.

Thank you.

And the next question is from the line of Jain Houlihan with Credit Suisse. Your line is now open.

So actually this is Moshe Orenbuch. Yes, a quick question because most of my questions actually have been asked and answered. But just wondering. I mean, there clearly are some stresses in the industry. How do you think about Air Lease's ability to kind of capitalize on some of them, you know, and some of the things you see out there that might be affecting competitors? Any things that you kind of think of that would be new tactics or strategies either for the Company or through Blackbird over the course of the next year?

Yes, well for both of those the company and Blackbird, I mentioned the possibility of some new aircraft positions coming out of specifically South American and possibly Russia. We’re always looking for those opportunities any unanticipated or not unanticipated airline economic weakness on a specific – airline basis usually when airlines start experiencing difficult times. That’s when they start selling aircraft. And so we’re looking at those opportunities even on existing aircraft. And again I have to point to South America as a prime example. This is not a flood of airplanes that are becoming on the market, I’m talking about kind of a trickle theory, but they do represent incremental growth opportunities. Also as we move forward in the leasing community to the extent that other leasing companies are looking to change their portfolio mix in one direction or another. We just sold our ATR portfolio, for example. We would be looking to pick up portfolios from other lessors that maybe deciding to change their mix or change their forward strategy. So that’s our job is to look at incremental opportunities every day we see them, they’re always there. As I mentioned way back in our history in the worst time 9/11, we went out and double down and ordered bunch of airplanes with the manufacturers because they were scared and the pricing was good. So I think we have a lot of experience based upon any developments in the marketplace, any macro issues. We have also mentioned we still remain skeptical that some of the very, very large orders placed by some of the low fare carriers in Asia and Europe. We’re talking 300, 400, 500 units, which are far more than they could ever use. We’re still not convinced that those airplanes are going to end-up with the original buyers or the original purchasers. So we think that those represent additional opportunities us well.

And just to echo, what John said, for example in the second half of last year we acquired three Boeing 737 NGs from an airline in the Middle East that was not in our original business plan. And in the fourth quarter, we actually sold two of those aircraft another lessor at a significant gain on the disposition. And we kept one aircraft in our own portfolio. So we’re going through processes right now where there are pockets of aircraft availability at attractive prices. And as Greg mentioned, we have significant liquidity. We have large unused credit lines and we can avail ourselves to these opportunities because of our financial strength and flexibility.

Great, thanks very much.

And our next question is from the line of Andrew Light with Citigroup. Your line is now open.

Thanks. Well, good morning. John, your comments on the MAX vis-a-vis the neo would suggest that the neo could probably just maintain the advantage it currently has over the MAX. And do you see those programs eventually going to parity particularly now that the MAX is in test flight?

Well, certainly Boeing is a pulling out all the stuffs to make sure that there is parity. My only point is that, so far to date the market has robustly accepted, and in fact embraced in a huge way the A321 Neo, and the A320 Neo. Whereas, Boeing of course is, maximizing a great airplane which is Dash 8-Max, but let’s face it, they’re falling short of the Dash 9-Max. So, the whole point is you have – can one airplane effectively today, and that’s the Dash 8-Max, will that sustain the same kind of single-aisle production rate that Airbus is looking to do. Now, they’ve announced 62 potentially a month in 2019. So, it’s basically can you do that with two horses or one. And, but having said that, there is very strong market demand for the Dash 8-Max. And you can rest assured that Boeing is doing everything they possibly can to maximize the market penetration of that aircraft. But the future remains to be seen.

Yes, just as a footnote, we are the largest leasing customer for the 737-Max with 112 firm orders. And we’re also the largest customer on the A321neo. So, we have a very strong insight into the marketplace. We have already leased a lot of these aircraft both of these types in – on a global scale to many, many airlines. And we do see, as I indicated earlier very robust demand for both versions. We’re not necessarily advocates of this 50-50 market share theory, because the airlines themselves will ultimately decide, what they need and in what quantities. But I think, Air Lease is very well-positioned to take advantage of the benefits that both of these new aircraft types bring to the marketplace.

Just a question on lease placements based on your comments. Do I take it that the six planes this year and 11 next and then maybe most of the 10 in 2018 are largely already dealt with in terms of expansions or releasing?

Correct. We have very, very low content in terms of lease expirations. And a number of these leases have already been extended. And we’ve also taken aircraft out of one lessee and released on medium-term or long-term leases to another lessee. So, that’s an ongoing process that our executive marketing team is engaged in. But we do not expect any aircraft to be in off-lease status for more than a transition period between two leases.

Andrew I’ll remind you, you can look at our 10-K and you can actually see the scheduled lease expirations by year. I want to point out though our policy out of conservatism is we book the earliest possible expiration and the very – for example, in the very few cases if there is an early termination option, we show the lease expiry at that early termination option whether or not that option has been exercised or whether we think it will be exercised on. So it’s a very conservative table, but I would urge as comparative to other lessors look at our table of lease expirees versus anybody else’s. And I think you’re going to find we have absolute lowest numbers in terms of the percentage [indiscernible] of quantity of aircraft I think its one of our huge competitive strength.

That’s great. Thank you very much.

Thank you.

And I'm showing no further questions at this time. I would now like to turn it back over to Mr. Ryan McKenna before any closing remarks.

This concludes our call for today. Thank you all for participation. And we will speak with you at the end of Q1.